Warren Buffett's penchant for identifying discounted businesses worth holding for the long term helped him become one of history's most successful investors. When Buffett took over Berkshire Hathaway in 1965, the company was valued at roughly $18 per share. As of this writing, a single share of the company's Class A stock goes for $487,440.
With that inspiring performance in mind, a panel of Motley Fool contributors has identified three stocks in the Berkshire portfolio that are down big from their highs and worth buying this March. Read on to see why they think that these companies have what it takes to deliver market-beating returns for long-term investors.
Image source: The Motley Fool.
This e-commerce giant is finding growth in the right places
Parkev Tatevosian: Amazon (AMZN 3.43%) thrived at the pandemic's onset. Hundreds of millions of folks looked to avoid shopping in person, and Amazon was an obvious alternative. As a result, the e-commerce giant gained millions of new customers and earned their trust during difficult times. It's no surprise that sales are slowing now that economies are reopening, and this has brought Amazon's stock down 22% off its high.
That has created an opportunity for long-term investors to scoop up Amazon, a top-25 position in Warren Buffett's holding-company portfolio. While retail sales are slowing at Amazon, the more profitable parts of its business are accelerating. Amazon Web Services, which had an operating margin of 29.8% in the quarter ended Dec. 31, has accelerated revenue four consecutive quarters, culminating at 40% in the most recent.
Moreover, Amazon has developed its advertising business, and it generated over $30 billion in revenue in 2021. Marketers covet the opportunity to gain the attention of the hundreds of millions of buyers who visit Amazon's website and app.
Shoppers have their payment information on file, and many get access to fast and free shipping, with as few clicks as possible before a purchase.
Fortunately for investors interested in buying Amazon, the sell-off has it trading at a price-to-earnings ratio of 46.46, the lowest in five years. Admittedly, the near term could be volatile for its retail business as the world goes through the reopening stages after the pandemic. That's why investors should mimic Warren Buffett's mindset for holding stocks for the long term.
Don't ignore this deep-value play on a likely winner in EVs
Jason Hall: Over the past few years, investors have largely gotten it into their heads that the future of automobiles will be self-driving and electric vehicles (EVs), and that the winners will be companies that largely didn't exist about a decade ago. As a result, shares of General Motors (GM 0.48%) have lagged the market by a significant amount.
GM total return level. Data by YCharts.
But as we have begun to learn more recently, the path forward for many of those start-ups is far harder and less assured than people expected. Rivian Automotive hiked prices on customers with pre-orders, a move that has been disastrous to public relations and order numbers, while Lucid Group cut its production estimates as much as 40%. Building cars is hard and expensive, and few companies have proved they can do it well over the long term. Even GM has had its struggles in the past.
But today, it's about as well positioned as anyone else in the global auto space. It has invested billions of dollars in EVs, and already has a track record of success while many start-ups struggle to even bring a few thousand vehicles to market. At the same time, it's made a big bet on autonomous vehicles via privately held Cruise, which it owns a majority stake in.
And while the upstarts struggle to even start up, GM is a very profitable business today. That means it has the cash and access to debt capital to fund its EV and autonomous ambitions, as it transitions its manufacturing away from combustion engines to electric vehicles.
Today, you can buy GM for 36% off its high, and at a bargain price of six times expected 2022 earnings. That's about as Buffett as it gets.
A key player in the data-analytics revolution
Keith Noonan: With valuations for growth stocks coming under pressure this year and a recent fourth-quarter report that spooked investors, shares of Snowflake (SNOW 3.69%) have now dropped roughly 38% in 2022. Shares also trade down roughly 48% from the high they hit last November.
The data-warehousing specialist's revenue topped analyst expectations and surged 101% year over year to reach $383.8 million in the fourth quarter, and its adjusted loss per share of $0.43 came in well below the average analyst target's call for a per-share loss of $0.55. Despite big top- and bottom-line beats, investors focused on the company's guidance and dumped the stock following the report.
After posting 106% sales growth last year, Snowflake issued midpoint guidance for the current fiscal term for revenue growth of 66%. That's a substantial sales-growth deceleration, but it still suggests strong business momentum, and this is a case where I think it pays to follow one half of Buffett's oft-quoted advice, and "be greedy when others are fearful."
The company's service makes it easy to combine information from otherwise walled-off data platforms, allowing businesses to get the full picture and generate more-valuable analytical insights. The company also provides a marketplace that allows business customers to monetize their data sets and purchase access to other data banks, and it could benefit from a powerful network effect as more clients join its platform.
In an age when access to data and analytics has never been more vital for business success, Snowflake provides a service that's helping enterprises keep up with the demands of the market, and it could go on to be a big winner for risk-tolerant investors.
