Please ensure Javascript is enabled for purposes of website accessibility

2 Top Warren Buffett Stocks to Buy Right Now

By Will Healy – Sep 21, 2021 at 8:03AM

Key Points

  • Warren Buffett and his team have embraced technology after famously resisting tech businesses.
  • Amazon is an e-commerce and cloud computing giant that remains in growth mode.
  • StoneCo has taken an innovative approach to fintech in Brazil.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite recent struggles, these stocks are likely not done moving higher.

Few can argue with Warren Buffett's long-term track record. Even after decades in the game and a portfolio whose massive size makes it all but impossible to buy hidden gems, he and his team are continuing to deliver for investors in Berkshire Hathaway (BRK.A 0.07%) (BRK.B 0.10%). This is especially true with some of Berkshire's tech stocks, including Amazon.com (AMZN -1.44%) and StoneCo (STNE 1.36%), which continue to prosper as technology plays an increasing role in the world economy.

Warren Buffett attends a media event.

Image source: The Motley Fool.

Amazon

Buffett was long skeptical about tech companies -- a skepticism that has clearly softened, since Apple makes up more than 40% of Berkshire's stock portfolio. Today, Buffett has shown he isn't afraid to embrace business models that would have been hard to imagine before the internet. Berkshire owns a comparatively modest 533,000 shares of Amazon, buying its first shares in 2019.

Even though founder Jeff Bezos has stepped aside as CEO, Amazon's revenue continues to grow. Moreover, the success of its Amazon Web Services (AWS) cloud computing segment is yielding larger margins. E-commerce activity in North America and internationally delivered 4% and 2% operating margins, respectively, over the last 12 months. This is well under the 29% margin for AWS during that time. Although AWS made up only about 13% of Amazon's revenue in the first half of 2021, it also accounted for 50% of its profits.

Amazon's approach has led to revenue of $222 billion for the first six months of 2021 and a net income of $16 billion during that period. It benefited from lower growth in expenses and an increase in income from valuation gains in non-core activities.

Despite a 104% increase in net income from year-ago levels, the stock has only risen by 14% over the past year, likely on concerns that consumers will shop more offline as COVID-19 wanes. Still, Amazon's price-to-earnings (P/E) ratio has fallen to around 60, which is right around 10-year lows. Additionally, as the company continues to drive revenue increases in both retail and cloud computing, it should continue to benefit both Buffett and the investors who follow his lead.

StoneCo

StoneCo is a less familiar name to Americans who do not follow Buffett stocks. Nonetheless, the Brazilian fintech company directly tackles the challenge of providing financial services in a society that remains primarily cash-based. Buffett now owns 10.7 million shares, having bought before the 2018 IPO.

Although players such as MercadoLibre, PagSeguro Digital, and more recently, Sea Limited compete in this space, StoneCo has stood out with its "no bureaucracy" strategy. The company will find areas of emerging demand and open hubs, training salesforces quickly in given localities to serve its clients.

StoneCo has faced challenges amid rising inflation in Brazil and problems with the country's new credit registry system. StoneCo had previously used the information it collected on client receivables to issue new loans to businesses. Due to problems with the new system, StoneCo announced on its second-quarter earnings call that it has opted to freeze new loans temporarily. As a result, Q2 revenue fell to 613 million reais ($116 million), an 8% drop from year-ago levels, mainly due to a 392 million reais "negative revenue contribution" from credit.

Nonetheless, Q2 payment volume of 60 billion reais ($11 billion) climbed 62% during that period as the client base topped 1 million. Moreover, despite the credit issue, revenue of 1.5 billion reais ($280 million) for the first half of 2021 rose 7% from the first six months of 2020. During that time, the company earned a profit of 37 million reais ($7 million) even after the adjustment.

Due to the uncertainty surrounding the credit system, the company declined to offer financial guidance. Still, the continuing increase in payment volumes bodes well for the business longer-term.

Thanks to the challenges regarding the credit system, the stock has fallen by 57% since its February high. Moreover, its P/E ratio has fallen to 50, near its levels from 2019 and less than a third of its earnings multiple from February. It has also made StoneCo less expensive than its most direct rival, PagSeguro, which sells for about 78 times earnings. As Brazil works to resolve issues with the credit system, the rising payment volume could help bring about a comeback for StoneCo stock.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), MercadoLibre, PagSeguro Digital, Sea Limited, and Stoneco LTD. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Stocks Mentioned

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.