Warren Buffett is one of the most successful investors of all time. Shares of his company, Berkshire Hathaway (BRK.A 1.57%) (BRK.B 1.42%), have gained more than 6,500% over the past 57 years due to his acumen. Buffett has made some famously lucrative investment decisions during his tenure as CEO.
So what companies does Buffett hold today that we should too? Let's look more closely at two stocks from the Oracle of Omaha's portfolio.
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1. Amazon
Buffett is not known for investing in the technology sector, so it was a surprise in 2019 when Berkshire Hathaway bought Amazon (AMZN -1.61%) shares. In fact, Buffett called himself "an idiot" for not investing in Amazon earlier. Amazon's recently reported fourth-quarter 2021 results show the business's strength and potential that may have led Buffett to add the stock to his portfolio. In Q4 2021, Amazon grew revenue to $138 billion, a 9% year-over-year (YOY) increase. Net earnings were $14 billion, a 98% increase over the $7 billion in the prior year.
However, investors do need to dig a little deeper here. The huge net income increase was largely due to the initial public offering (IPO) of electric automaker Rivian, a company in which Amazon invested more than $1.3 billion prior to its IPO. Excluding that investment, net income would have been $2.5 billion, a 65% loss over Q4 2020. Of course, that was a tough year-over-year comparison as the economy began to reopen and people came out of their homes. Looking ahead, earnings should smooth out considerably.
There's no doubting Amazon's superb, historical performance, but what about the future? There is one big reason for investors to be confident about Amazon's continued success. Q4 saw Amazon's biggest year-over-year revenue gain ever for its Amazon Web Services (AWS). This segment now has a $71 billion annual run rate, up from $51 billion a year ago. Amazon has also been spending on growing its business with capital expenditures up 34% over the past year. Management made clear on the Q4 earnings call that just under 40% of that spending is going to infrastructure, mostly for AWS.
Amazon is the leader in the cloud infrastructure space, which is expected to more than double by 2026. With approximately 33% of the market share, Amazon is poised to benefit from this secular growth trend, rewarding shareholders in the process.
Image source: Getty Images.
2. RH
Another 2019 Buffett investment is RH (RH 3.13%), a luxury retailer in home furnishings. Formerly known as Restoration Hardware, RH has been putting up impressive results. When the company reported its Q3 earnings in December, revenue and net income grew 19% and 297%, respectively, compared to Q3 2020. Profitability also expanded with gross margin increasing by half to to 48.4%. The company also produced $145 million in free cash flow in the quarter.
RH has proven it can succeed in the luxury furnishings space, but the company has bigger ambitions. In 2020, it announced the launch of RH Residences -- a move into the real estate market in which RH will offer fully designed and furnished homes. Management believes this is a $1.7 trillion opportunity in North America alone.
After a delay due to supply-chain issues, 2022 will also see the launch of RH Contemporary, which management is calling the most meaningful new product launch in its history. This will include its own gallery and a national advertising campaign.
RH is also looking to expand internationally with locations secured for galleries in London, Paris, Munich, and Dusseldorf. If the company can capture even 1% of the global market, management thinks that could be a $70 billion to $100 billion opportunity.
Bottom line for investors
No investor should buy a stock simply because someone else did, even if that someone else is Warren Buffett. That said, Uncle Warren's portfolio is a great place to look for ideas. Upon digging in, I think both Amazon and RH are great companies to own now and into the future.
