Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) CEO Warren Buffett isn't known for putting his company's money behind risky stocks. In fact, he's gone on record saying that the first rule of his investing philosophy is not to lose money. If you were wondering what Buffett's second rule is, it's to remember the first rule.
But the Oracle of Omaha's prime directive for investing is probably best thought of as a rule for guiding overall portfolio management because there are actually a handful of high-risk, high-reward stocks held by Berkshire. If you are willing to incorporate some above-average risk tolerance into your portfolio, read on for a look at two Buffett-backed stocks that have the potential to deliver explosive wins for risk-tolerant investors.
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1. Snowflake
With the company valued at more than $51 billion and trading at 25 times expected forward sales, Snowflake (SNOW 2.53%) is the most growth-dependent stock in the Berkshire Hathaway portfolio by some metrics.
SNOW PS Ratio (Forward) data by YCharts
So what makes this unusual Berkshire Hathaway portfolio component so special?
Snowflake's Data Cloud provides tools that make it possible to combine, analyze, buy, sell, and share data across otherwise siloed cloud-infrastructure platforms. With analytics becoming increasingly central to business strategies and operations, the company is successfully attracting new large customers to its platform.
And once customers are on board, they tend to increase their spending substantially over time. Customers that were already using Snowflake's services increased their spending 65% year over year in the third quarter, and this helped push the company's overall product revenue up 67% compared to the prior-year period and reach $522.8 million.
With the company guiding for an approximately 31.6% compound annual revenue growth rate over the next six years and targeting a roughly 25% non-GAAP (adjusted) free-cash-flow margin at the end of the period, the business appears to be on track to scale rapidly and profitably. Even better, there's a good chance that the end of that projection period will come to represent a relatively early chapter in Snowflake's long-term growth story.
2. StoneCo
In addition to macroeconomic trends generally depressing values for growth stocks, StoneCo (STNE 0.32%) has dealt with some major business-specific setbacks over the last couple of years. The Brazilian fintech company's payment-processing business continued to serve up strong results, but its push into offering credit to small- and medium-sized businesses proved to be a major dud.
In conjunction with trends tamping down on valuations across the broader stock market, the credit segment's failures have helped push StoneCo's share price down 88% from its high. No doubt about it, this is still a high-risk, high-reward stock, but the fintech's valuation has been pushed down to levels that open the door for explosive upside.
STNE PS Ratio (Forward) data by YCharts
With growth for its merchant partner count pushing total payment volume higher, the company's overall revenue grew 71% year over year in Q3. The company's adjusted net income also jumped 90.5% compared to the prior-year period and 112.4% on a sequential basis.
There's a good chance that growth will be uneven going forward, but StoneCo looks attractively valued for risk-tolerant investors given the recent momentum for the payment-processing business. What's more, it's even possible that the company will be able to navigate the challenges with the credit business and get the unit back on track even though it still presents financial hurdles in the near term.
