Warren Buffett once stood out for his avoidance of tech stocks. But eventually, over time, he would go on to admit that his initial view was wrong, revealing to CNBC in 2017 that he wished he had bought Google stock, now known as Alphabet, early on.
Although Buffett never bought the Google parent, tech stocks make up a considerable portion of his Berkshire Hathaway (BRK.A -0.00%) (BRK.B -0.11%) portfolio. Additionally, some stocks Warren Buffett owns in the tech sector, such as Apple (AAPL -0.95%) and StoneCo (STNE 0.18%), could serve new investors well.
Many investors who prioritize diversification may not like that Apple makes up about 45% of the Berkshire Hathaway portfolio. Nonetheless, many characteristics of Apple may put those uncomfortable with such a position at ease.
Apple's iPhone continues to generate rising returns and the majority of the company's revenue amid the 5G upgrade. Moreover, Apple's innovations such as the Mac, the Apple Watch, and a burgeoning services business have continued to bring about double-digit revenue increases even as revenue growth slowed from previous quarters.
In addition to its popular products and rising revenue, Buffett and his team probably like that it holds $204 billion in liquidity. This includes over $44 billion in free cash flow it generated in the previous quarter. Such reserves helped it join Microsoft and Johnson & Johnson as the only companies to receive a AAA credit rating from Moody's.
Moreover, despite the tech sell-off, Apple stock has risen about 28% over the last year, well ahead of the 14% return from the S&P 500 over the same period.
Furthermore, though its price-to-earnings (P/E) ratio of 28 has risen significantly since before the pandemic, it is cheaper than PC rival Microsoft and cloud peer Amazon, which sell for 31 and 48 times earnings, respectively. In addition to Buffett's huge position, its compelling products, massive liquidity, and solid balance sheet make Apple a no-brainer stock to buy right now.
Brazilian fintech company StoneCo is a top Buffett stock in the sense that it attracted a pre-IPO investment from Buffett's team. Admittedly, this 3.5% stake in the company is only a tiny portion of Buffett's portfolio, and Buffett's purchase of another Brazilian fintech named Nu Holdings may currently attract more attention. Nonetheless, the early investment initially paid off, as the stock skyrocket from its IPO price of $24 and reached a high above $95 per share.
However, the pandemic, rising inflation, and rule changes by Brazil's central bank took their toll on the company. The stock has fallen to just over $11 per share, far below its IPO price in 2018, at which Buffett's team bought the company.
Still, in the first nine months of 2021, StoneCo reported 3 billion reais ($580 million) in revenue, 27% higher in the first three quarters of 2020. During that period, the total payment volume of 186 billion reais ($36.3 billion) surged 28%.
Nonetheless, StoneCo reported a net loss of 576 million reais ($111 million) in the first three quarters of 2021. Massive increases in the cost of services, selling expenses, and administrative expenses, as well as a negative fair value adjustment of 500 million reais ($97 million), contributed to the loss. Furthermore, despite analyst predictions for 71% sales growth in Q4, analysts expect more losses in Q4.
However, analysts also predict 71% revenue growth in fiscal 2022. Sustaining this growth could again make the company profitable. Moreover, the price-to-sales (P/S) ratio has fallen to five, down from 44 one year ago. And after selling for a much higher valuation than Brazilian fintech rival PagSeguro, the gap has almost closed, with PagSeguro trading at 4.7 times sales. With this discounted valuation and StoneCo selling for just over half of its IPO price, investors ready to take on some risk could have a unique opportunity to follow in Buffett's footsteps.