Many investors keep apprised of Warren Buffett's investing decisions by monitoring the quarterly Form 13Fs filed by Berkshire Hathaway. But those disclosures only tell part of the story. Berkshire owns New England Asset Management (NEAM), a financial institution with $5.9 billion in invested assets, but none of those securities will appear in Berkshire's 13F filings. Instead, NEAM files its own Form 13Fs with the Securities and Exchange Commission.
To be perfectly clear, Buffett does not control NEAM's invested assets, at least not directly, but he does run the company that ultimately owns those assets. Here are two stocks from Buffett's "secret portfolio" to buy now and hold forever.
1. PayPal: A leader in digital payments
PayPal Holdings (PYPL -1.14%) is the most accepted digital wallet in North America and Europe, and it ranked as the most downloaded finance app worldwide in the first half of 2022. That success stems in large part from its two-sided network. Whereas most payment providers work solely with merchants, PayPal builds relationships with merchants and consumers, and that gives the company a material advantage.
For instance, PayPal has a deeper understanding of consumer spending habits, which enhances its ability to drive sales and combat fraud for merchants. In fact, PayPal pairs the lowest loss rates with the highest authorization rate in the industry, meaning it can identify fraudulent transactions more effectively than any rival.
Additionally, PayPal derives another important benefit from its two-sided network. The company has built trust with merchants and consumers, which drives higher conversion rates, more frequent purchases, and larger average order values. In fact, according to CEO Dan Schulman, PayPal checkout conversion is 34% higher than other checkout options.
Those competitive advantages fueled solid financial results on a relatively consistent basis. Despite the challenging economic environment, PayPal's revenue climbed 10% to $27 billion over the past year, and its free cash rose 13% to $5.7 billion. More importantly, investors have good reason to believe the company can maintain (or accelerate) that momentum.
PayPal values its addressable market at $110 trillion, meaning it has hardly scratched the surface of its potential, and it recently forged new partnerships with Amazon and Apple. U.S. consumers can now check out with Venmo on Amazon, and they will soon be able to use PayPal and Venmo branded cards through Apple Pay. Those partnerships could help PayPal take market share in physical and digital commerce.
Currently, shares trade at 3.3 times sales, a bargain compared to the three-year average of 9.1 times sales. That's why this growth stock is worth buying.
2. Nvidia: A leader in graphics and accelerated computing
Nvidia (NVDA 3.71%) has come a long way since inventing the graphics processing unit (GPU) in 1999, a chip that brought revolutionary visual effects to video games. GPUs were built to perform billions or even trillions of calculations simultaneously, meaning they can process a lot of data very quickly. That quality makes them very good at rendering ultra-realistic graphics -- in fact, Nvidia holds more than 90% market share in workstation graphics -- but GPUs have also seen widespread adoption in data centers, where they accelerate complex workloads such as artificial intelligence (AI) and scientific computing.
Today, Nvidia holds more than 90% market share in supercomputer accelerators, and its GPUs have become synonymous with AI infrastructure, according to Forrester Research. Additionally, Nvidia doubled down on its data center business by diversifying its portfolio with high-speed networking solutions and subscription software. For instance, AI Enterprise is a suite of software that streamlines the development of AI applications. Nvidia AI addresses use cases across virtually every industry, including autonomous robots in logistics, intelligent avatars in customer service, and loss prevention in retail.
Unfortunately, the semiconductor industry is cyclical, and economic headwinds have exacerbated that cyclicality. High inflation decreased demand for graphics and data center chips while simultaneously putting upward pressure on operating expenses. That one-two punch led to disappointing financial results for Nvidia over the past year. Revenue rose just 18% to $28.6 billion, and free cash flow dropped 33% to $4.8 billion.
Fortunately, Nvidia is poised to reaccelerate growth when the economic headwinds fade. The company puts its addressable market at $1 trillion, and it should benefit from the continued evolution of technologies like autonomous vehicles, intelligent robots, and the metaverse.
The company also plans to debut its first central processing unit (CPU) this year. Code-named Grace, the CPU is a server chip designed to accelerate tasks like machine learning, and it should reinforce Nvidia's importance in the data center.
Currently, shares trade at about 13 times sales, a meaningful discount compared to the three-year average of 20.3 times sales. At that price, investors should buy a small position in this stock.
