As perhaps the single most successful investor in history, it's safe to say Warren Buffett knows a great deal when he sees one. The Oracle of Omaha took over Berkshire Hathaway in 1965 and has guided the company to a return of 2,712,400% across his tenure -- good enough to turn a $1,000 stake in the company in 1965 into more than $27.1 million if it were held across the stretch.
With that kind of incredible performance, it's little wonder so many investors pay close attention to Buffett's public statements and stock-buying moves. Read on for a look at three companies in the Berkshire Hathaway portfolio that trade at significant discounts and have what it takes to deliver market-beating returns.
Image source: The Motley Fool.
1. Snowflake
You may have heard someone say, "data is the new oil." With multiple supply constraints causing energy prices to soar right now, oil is probably the new oil from the current stock market perspective, but it would be a mistake to lose sight of just how important access to valuable data and analytics will be to business success over the next decade and beyond.
Snowflake (SNOW +3.32%) provides a platform that allows data from walled-off cloud platforms to be combined and analyzed, and it also operates a marketplace that allows business customers to sell their data and buy data from other vendors. While the company is guiding for an otherwise impressive 66% annual sales growth this year, that marks a substantial deceleration from the 106% annual revenue growth this year, and investors have generally been abandoning companies that aren't already posting significant profits.
NYSE: SNOW
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With a multitude of factors creating volatility in the market right now, it may not be an easy time to have confidence in growth-dependent software companies, but Snowflake is a category leader that looks poised to deliver wins for shareholders over the long term.
2. StoneCo
StoneCo (STNE +1.00%) stock has gotten crushed due to the market's shift away from fintech stocks and some substantial business-specific headwinds. With pandemic-related conditions leading to slower-than-expected economic growth and high inflation in Brazil, StoneCo is operating against a challenging macroeconomic backdrop. Making matters worse, regulatory changes in the country have meant the business is taking some significant losses on its credit business, and it temporarily halted lending to small- and medium-sized businesses.
NASDAQ: STNE
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The company's share price trades down roughly 39% year to date and a whopping 89% from the lifetime high it hit last February. These factors have combined to crush enthusiasm for StoneCo stock, but this is a case where I think that risk-tolerant investors could benefit from pouncing on a company with a beaten-down valuation.
Following the big valuation pullback, StoneCo now has a market capitalization of roughly $3.2 billion and is valued at approximately two times this year's expected sales and 24 times expected earnings. Due to challenges facing the company's credit business, earnings performance could be bumpy in the near term, but the company's payment-processing business has continued to add new merchant customers at an encouraging rate.
The pivot from cash to card- and app-based payments in Brazil and other Latin American markets is still in its early stages, and StoneCo's leading position in driving the shift gives it the potential to beat expectations and bounce back to deliver wins for shareholders.
3. Verizon
As a value stock backed by a sturdy business and a big dividend, it's not surprising that Verizon Communications (VZ +0.17%) has held up relatively well compared to more growth-dependent stocks amid recent turbulence that has roiled the market. However, the stock does trade down roughly 6% over the last year and 11% from its 52-week high. It's also down significantly from the fourth quarter of 2020, which is when Berkshire Hathaway initiated a position in the stock that has made it the investment conglomerate's seventh-largest overall stock holding.
VZ data by YCharts.
Verizon operates the United States' largest and best-rated mobile wireless network, and the essential nature of connectivity and high levels of customer satisfaction suggest the business should continue to deliver strong sales, earnings, and free cash flow even in the face of macroeconomic pressures. After investing billions in infrastructure and wireless spectrum band, the telecom giant is also still in the early stages of benefiting from the rollout of 5G network technologies.
With its great brand strength, impressive dividend, and reasonable valuation multiples, Verizon has characteristics Buffett prizes. Shares trade at under 10 times this year's expected earnings, and the company's current dividend yield is sitting at an attractive 4.8%. The company has now raised its dividend annually for 15 years running, and it's likely that shares purchased today will generate even bigger yield down the line thanks to future payout hikes.
