Warren Buffett has built a multi-decade record of picking stocks that deliver great returns. Since taking over as CEO of Berkshire Hathaway (BRK.A -2.04%) (BRK.B -1.96%) in 1965, shares have doubled the return of the broader stock market, thanks to Buffett's investing savvy. 

Two stocks in Berkshire's portfolio that look promising are RH (RH -2.29%) (formerly known as Restoration Hardware), and Mastercard (MA -1.16%). Mastercard has been a holding in Berkshire's portfolio for several years, while RH is a relatively new holding. 

RH and Mastercard possess the qualities that Buffett typically looks for: excellent management, a competitive advantage, and favorable long-term growth prospects. These stocks also have near-term catalysts that could send them higher, making this a particularly good time to consider buying shares.

Warren Buffett

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1. RH

With the retail world rapidly shifting to e-commerce, RH is standing out in the luxury home furnishings market by doubling down on the store shopping experience. The stock has been a big winner for investors, up 2,500% over the last five years, but there's plenty of growth potential still ahead to send the stock price higher. 

The company's strategy to open lavishly designed galleries that display a sophisticated lifestyle setting is helping the company emerge as one of the top lifestyle brands in the world. RH sales increased 48% cumulatively over the last five years, but what's most impressive is that its return on invested capital has steadily climbed to a phenomenal 40% over the last year. 

RH is seeing its sales and profitability improve while expanding into new design categories, such as RH Outdoor, RH Rugs, RH Baby and Child, and RH Beach House, among others. RH distinguishes its brand by maintaining relationships with artisan partners to develop exclusive products, and these exclusive products have translated to big profits. In the first quarter of 2021, the company reported a stellar operating profit margin of 21.8%, which is unheard of in the cutthroat home goods market.

RH doesn't solely rely on people visiting one of its galleries. It operates several channels to showcase and sell products, including the RH website, outlets, and source books. With multiple sales channels, RH was able to post a sales increase of 8% in fiscal 2020 when many retail businesses were struggling. 

It's still in the process of expanding its design galleries around the world, with five new galleries scheduled to open over the next three years in major cities across Europe. RH's trailing annual revenue is currently $3.2 billion, but management believes its design galleries could double its revenue opportunity in North America, not counting international markets. 

A favorable backdrop for home improvement spending should benefit RH in the near term. Longer term, this well-managed business has vast opportunities to increase its intrinsic value, which is why it sits in Berkshire Hathaway's portfolio.

A person talking on the phone while holding a credit card.

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2. Mastercard

Mastercard had a rough 2020. The recessionary environment pressured consumer spending, which means fewer credit card transactions passed through its processing network. However, one year doesn't break a great company. Even during the pandemic, Mastercard facilitated 90.1 billion transactions last year for an increase of 3%. But Mastercard can grow much faster than this. 

In 2019, it facilitated 87.3 billion transactions, representing an increase of 19% year over year. Because there are only a few major card brands, the credit card business is extremely profitable with very high barriers to entry. Mastercard's wide competitive moat allows it to earn an extraordinary operating margin above 50%, when the average business earns an operating margin less than 10%. 

One reason Mastercard keeps its margins high is that it doesn't issue credit cards or carry credit risk, so it avoids the losses that banks can experience when the economy goes south, causing some consumers to struggle to pay off loans. Mastercard is simply in the business of facilitating transactions across its network, which lowers its business risk to investors.

The main threat to watch for over the long term are new payment products introduced by companies that operate digital wallets, like PayPal Holdings, or the use of cryptocurrency that could diminish the need for credit cards. But Mastercard's growing volume of transactions over its network shows that many people still value their credit cards for the security and cash reward offers they bring.

Mastercard still has substantial long-term growth opportunities. E-commerce sales totaled only 13.4% of U.S. retail sales in the first quarter. More people will gradually shift away from cash transactions to electronic payments, providing a tailwind to Mastercard's business. 

With the economy cranking up, now is a good time to consider buying shares. Mastercard should see its transaction volume gradually accelerate back to pre-pandemic trends. Management reported during the first-quarter earnings report that it's already seeing significant pent-up demand for travel, which would boost transaction growth and revenue, providing a catalyst for a higher stock price.