CEO Warren Buffett's company Berkshire Hathaway crushed the market once again in 2022, and the investment conglomerate has absolutely trounced the S&P 500 over the last four decades.
Buffett's focus on finding great businesses worth holding for the long term has been foundational to his world-beating success story, and it's little wonder that investors all around the globe turn to the Oracle of Omaha for inspiration when it comes to buying stocks.
With the market still in a volatile state, following the legendary investor's lead could be a smart move in the new year. In particular, there's one company in the Berkshire portfolio that I believe stands out as the best Buffett-backed stock to buy for 2023. And it might not be the one you would expect.
Image source: The Motley Fool.
Amazon stock presents a fantastic long-term opportunity
Coming in at less than 1% of the company's overall stock holdings, Amazon (AMZN 0.56%) has a relatively small position in the Berkshire Hathaway portfolio, but it wouldn't be shocking to see that change in the not-too-distant future. The stock is now down 50% over the last year and 52% from its high, and it offers an attractive combination of value and growth potential trading at less than 1.6 times this year's expected sales.
AMZN PS ratio (forward), data by YCharts.
Berkshire ended last quarter with a cash pile of $109 billion, and Amazon currently looks like one of the best long-term buys on the market. Predicting Buffett's next moves certainly involves some guesswork, but I think there's a good chance that the investment conglomerate will show increased holdings of Amazon shares when it publishes filings outlining its stock holdings in 2023.
If Berkshire has bought more Amazon stock, that could be enough to trigger a significant valuation rally for the e-commerce and cloud-computing titan, but that's not why I believe that it stands out as one of the best possible buys for investors in the new year.
The business' pillars remain very strong
If recent stock performances were your only criteria for assessment, you could be forgiven for thinking that Amazon's best days as a business are now in the rearview mirror.
The company's valuation has been crunched as rising interest rates and other headwinds have driven investors out of stocks with growth-dependent valuations, and it also faces some business-specific challenges related to the tougher macroeconomic backdrop.
In addition to rising fuel prices boosting delivery costs and other inflationary pressures, Amazon has made some big investments during the pandemic in order to improve its infrastructure and technology resources. Now that pandemic-related tailwinds have lessened, the e-commerce segment is recording significantly higher costs at a time when revenue growth is comparatively anemic.
There are also signs that macroeconomic pressures are slowing growth for the profit-driving Amazon Web Services cloud segment.
The midpoint of the company's guidance calls for overall sales growth of just 4.8% year over year in the fourth quarter, which might look pretty shocking given that the business has otherwise been expanding at a rapid clip for decades.
On the other hand, it retains a leadership position in the online-retail industry. And continued advances in warehouse and delivery automation stand to make the delivery business much more profitable over the long term.
AWS also continues to lead the cloud-infrastructure services market, and 27% sales growth and an operating-income margin above 26% in the third quarter suggest that the profit-generating powerhouse segment remains in good shape.
Amazon is built to win in the future
Amazon's tremendous resources put it in good position to remain one of the world's most influential companies for decades to come.
The company's dominance in online retail has helped it rapidly build a strong position in online advertising, and it now trails only Alphabet and Meta Platforms in the U.S. digital ads market. Despite headwinds, Amazon's ads business grew revenue 25.5% year over year in the third quarter, and there's a very good chance that the company will be able to continue leveraging strengths across segments to improve overall efficiency and tap into new opportunities.
The tech giant continues to make big investments to shore up leadership in emerging tech trends including artificial intelligence (AI) and robotics, and it's likely that its early leadership in these categories will translate to big wins over the long term.
Near-term pressures hitting the e-commerce business have crushed bullish sentiment on the stock, but strides in warehouse and factory automation stand to drive dramatic improvement for the company's massive, category-leading online retail business. And Amazon's status as a market-leading cloud-infrastructure services provider has the business sitting at the intersection of massive data streams that will help it train AI systems and map out promising new avenues for innovation.
As Buffett has said, it's far better to buy a wonderful company at a fair price than it is to buy a fair company at a wonderful price. With Amazon stock, investors have an opportunity to invest in one of the world's best companies at a fantastically advantageous price that leaves the door open for incredible long-term returns.
