Since taking over the reins as CEO in 1965, Buffett has overseen an average annual gain in Berkshire's Class A (BRK.A) shares of 20%. Including year-to-date gains, we're talking about an aggregate gain of almost 3,500,000%. For comparison, the benchmark S&P 500 has delivered a total return, including dividends paid, of 29,601% since the beginning of 1965.
In other words, when Warren Buffett buys a stock, Wall Street and the retail community rightly pays close attention.
Leaning on time as your ally, you can invest like Buffett, too. If you've got $250 at the ready, which won't be needed for bills or emergencies, the following trio of companies represents some of the smartest Buffett stocks you can buy right now.
Bank of America
With growth stocks soaring for much of the past decade, there's a good chance investors have overlooked bank stocks time and again. However, with a multitude of catalysts in its sails, Bank of America (BAC -0.30%) is looking better than it has in a long time.
As with all bank stocks, the key thing to understand is that they're cyclical. If the U.S. and global economy are growing, banks are liable to see their deposits and loans increase over time. Conversely, periods of recession tend to hurt bank earnings as delinquencies rise. Although recessions are an inevitable part of the economic cycle, periods of expansion usually last for years at a time. Thus, a bet on bank stocks is simply a high-percentage bet on the U.S. or global economy growing over time.
What makes Bank of America so intriguing is its interest rate sensitivity. No money-center bank has more on the line, with regard to net interest income, than BofA. According to the company's third-quarter investor presentation, a 100 basis point parallel shift in the interest rate yield curve would generate an estimated $7.2 billion in added net interest income. Since most of BofA's loans are variable rate, it's poised to benefit as interest rates rise in the foreseeable future.
Equally impressive is Bank of America's push to digitize its operations. Even though BofA doesn't exactly scream "high tech," the company ended September with 40.9 million digital active banking users, which is up approximately 4.7 million from the same period three years ago.
More importantly, 43% of total sales were completely digital (online or via mobile app). Digital sales are significantly cheaper for BofA than in-person or phone-based transactions. This steady shift to digital banking has allowed Bank of America to consolidate some of its branches and reduce expenses.
With U.S. inflation recently hitting a more than 30-year high, and the likelihood of rate hikes increasing for 2022, Bank of America looks like a no-brainer buy.
Similar to BofA, GM has been an afterthought for much of the past decade. Between inevitable recessions and large debt balances, Wall Street and investors have been unwilling to give General Motors a price-to-earnings multiple above nine. However, things look like they're about to change.
We're in the very early innings of an automotive revolution that's focused on electrifying consumer vehicles and enterprise fleets in an effort to combat climate change. With most large economies onboard, a path is set for electric vehicles (EVs) to grow at an exponential rate throughout this decade and beyond.
For its part, GM has announced plans to spend $35 billion on EV, autonomous vehicle, and battery research between 2020 and 2025. CEO Mary Barra expects more than $80 billion in incremental new revenue from EVs by the end of the decade, with GM on track to launch 30 EVs globally by 2025. The company will also have two devoted battery plants up and running by 2023.
Aside from a plain-as-day opportunity in the U.S., General Motors anticipates gobbling up plenty of EV share in China, the largest auto market in the world. GM looks to be on pace to near 3 million vehicles sold in China this year, with the industrywide chip shortage playing a role in holding back production and deliveries. The point being that General Motors has an established presence in China and should be able to pivot its overseas success into EV share in the world's top auto market.
With beefed up organic growth on GM's doorstep, we could witness significant valuation multiple expansion in the years to come.
Similar to Bank of America, Visa is a highly cyclical company. When recessions inevitably arise, consumers and businesses tend to restrict their spending, which lowers Visa's revenue and profit potential. However, the last economic expansion in the U.S. lasted for more than a decade. Payment processors have little issue navigating through a couple of challenging quarters if the long-term reward is multiple years of increased spending.
Something else to consider with Visa is that it's one of the few companies directly primed to benefit from higher inflation. If consumers and businesses are spending more on the goods and services they need due to higher prices, the revenue Visa will recognize on credit card-based transactions will grow, too.
Another reason Visa is such a success story is its avoidance of lending. You'd think the company would take advantage of long periods of economic expansion by earning interest income and fees. But this would also mean having to set aside capital to cover credit/loan delinquencies during economic contractions. Since Visa doesn't lend, it won't have to set aside capital when the economy turns south. This is why it bounces back so quickly from downturns and maintains a profit margin of more than 50%.
Lastly, there's ample opportunity for Visa to expand its payment infrastructure to new markets, as well as grow by acquisition (e.g., the purchase of Visa Europe in 2016). Most of the world's transactions are still conducted with cash, meaning underbanked regions like the Middle East, Africa, and Southeastern Asia offer multi-decade growth potential.