Warren Buffett's legendary tenure as CEO of Berkshire Hathaway (BRK.A 0.20%) (BRK.B 0.27%) has earned him the title of history's most successful investor. When the Oracle of Omaha assumed control of the business in 1965, it was a textile manufacturer. But Buffett used the beaten-down company as a foundation from which he built the world's most successful investment conglomerate.
Buffett's ability to identify great companies trading at prices that left room for huge gains over the long term has powered Berkshire Hathaway's Class A stock to mindboggling gains of more than 2,765,000% since Buffett took the reins. With that kind of incredible performance in mind, read on for a look at three underrated stocks in the Berkshire portfolio that are worth buying right now.
Image source: The Motley Fool.
1. Amazon
It might sound a bit ridiculous to call Amazon (AMZN +0.76%) "underrated." After all, it's one of the biggest companies in the world and currently has a market capitalization of roughly $1.55 trillion. On the other hand, calling the stock underrated might have also sounded unreasonable at many other points throughout its history, but the company has proven the doubters wrong again and again.
AMZN Market Cap data by YCharts
Amazon's leadership in e-commerce and cloud infrastructure means that it has forefront positions in some of the world's most influential high-growth industries. In addition to those two core pillars, the company's fast-growing digital advertising business looks to be another big winner. The tech giant will also likely play a huge role in shaping influential technology trends, including artificial intelligence and robotics.
Amazon stock currently trades down roughly 20% from the high that it hit last year, and there's a good chance it will bounce back and go on to reach new highs. Five years from now, investors will probably still be debating whether it's fair to call the stock underrated, but they'll probably be able to look back and agree that it was at current prices.
2. Verizon
Thanks to its top-rated service offerings, Verizon (VZ +2.78%) has managed to build strong brand strength in the mobile wireless and internet communications space. The company is a leader in its service categories, and it's hard to imagine a future in which connectivity will become less central to business and everyday life. With its 5G rollout still in the very early stages, Verizon has an underappreciated growth catalyst that could help it significantly outperform the market's expectations.
Berkshire made a massive investment in the telecommunications company in the fourth quarter of 2020, but Verizon stock has actually lost some ground since the move. That means investors have a rare chance to invest in a great company at prices that are cheaper than what even Buffett paid.
Verizon also boasts a stellar dividend profile, with a yield of roughly 4.8% and 15 years of consecutive annual payout growth under its belt. Trading at roughly 9.5 times this year's expected earnings and a favorable outlook for more dividend payout growth, Verizon stock stands out as a great pick for dividend-seeking investors looking to benefit from 5G trends.
3. Snowflake
Snowflake (SNOW 3.40%) provides a platform where customers can buy, sell, and combine data from different cloud providers. Accessing and analyzing data has never been more vital to a business' success, and Snowflake has clearly capitalized on that trend.
What's more, clients are undoubtedly big fans of its services. The below chart tracks Snowflake's dollar-based net revenue retention rate across its last five reported quarters.
Image source: Snowflake.
The business posted an incredible revenue retention rate of 178% in the fourth quarter, which means that customers who were already using its services increased their spending by 78% compared to the prior-year period. Along with strong customer additions, this pushed the company's product revenue up 106% annually last year to reach roughly $1.14 billion.
Snowflake's share price has lost ground in recent months because the business isn't profitable yet, and the market has generally been becoming more risk-averse. However, the data-services stock looks seriously underrated, trading down roughly 48% from the high that it hit last year, and it could go on to be a fantastic performer for long-term investors.
