Berkshire Hathaway CEO Warren Buffett's strategy of buying quality companies and holding them for the long run has paid rich returns over the years, which is evident from the fantastic returns delivered by the Class A shares of Berkshire over the past decade.
Buffett's investment strategy has seen shares of Berkshire Hathaway nearly triple over the past decade with gains of 198%, outpacing the S&P 500's appreciation of 148%. Not surprisingly given his solid track record, Buffett's holdings are closely tracked by investors and analysts.
So if you're new to investing and have capital of $300, or if you have surplus cash on you after paying off high-interest debt, meeting expenses, and saving enough for a rainy day, then you might want to consider buying the following companies in which Buffett's Berkshire holds a stake.
Amazon
Share prices of Amazon (AMZN 2.62%) are up 10% so far in 2023, but investors can still buy them at a relatively attractive valuation. The tech giant's price-to-sales ratio of 1.8 represents a discount to the S&P 500's sales multiple of 2.25. As Buffett's philosophy of value investing focuses on purchasing solid companies with healthy long-term prospects and earnings growth potential at cheap valuations, buying Amazon looks like a no-brainer right now.
It is worth noting that Buffett first bought Amazon stock in the first quarter of 2019. The stock was trading at a relatively expensive 3.8 times sales at the end of Q1 2019, which means that investors can buy this Buffett stock right now at a cheaper multiple than what the Oracle of Omaha paid four years ago.
NASDAQ: AMZN
Key Data Points
From e-commerce to cloud computing to digital advertising, Amazon has a diversified set of growth drivers. It is the second-largest e-commerce company in the world, accounting for 13% of the global online gross merchandise volume (GMV). This puts Amazon in a nice position to capitalize on the secular growth of the e-commerce space, which is expected to generate $6.3 trillion in revenue this year, up 10.4% from 2022.
The global e-commerce market is expected to clock high-single-digit growth through 2026 and account for 24% of overall retail sales, suggesting that it could keep growing for a long time to come as e-commerce adoption improves.
Meanwhile, cloud computing is going to be another key growth driver for Amazon, as the company controls nearly a third of this market. Amazon may be witnessing a slowdown in this market lately on account of tight customer spending, but investors shouldn't miss the bigger picture. Mordor Intelligence estimates that the cloud infrastructure services market could clock 19% annual growth through 2028, driven by an increase in data consumption and the improving adoption of cloud-based services. This should pave the way for further growth in Amazon Web Services (AWS), a segment that produced $80 billion in revenue last year and grew 29% over the prior year.
These catalysts indicate why Amazon's bottom line is expected to grow at a solid pace in 2023 and beyond following last year's loss of $0.27 per share.
AMZN EPS Estimates for Current Fiscal Year data by YCharts
So investors looking to buy an e-commerce stock that Buffett's Berkshire has a stake in should consider going long Amazon right away given the cheap valuation it is trading at. Also, buying Amazon stock and holding it for a long time could help multiply even a small amount such as $300 substantially. For instance, a $300 investment in Amazon a decade ago is now worth over $2,100. Of course, the past isn't an indicator of future performance, but the company's multiple catalysts could give the stock a nice shot in the arm and boost investors' wealth going forward.
Floor & Decor
Floor & Decor Holdings (FND 4.09%) stock has been in fine form on the market this year, gaining over 27% so far thanks to the company's impressive fourth-quarter 2022 results, which were released on Feb. 23. The multichannel retailer and distributor of hard-surface flooring items such as tiles, wood, and laminates, as well as wall tiles, finished the year with a 24% increase in sales to $4.26 billion.
NYSE: FND
Key Data Points
The impressive growth was driven by a combination of new store openings and an increase in comparable store sales. Floor & Decor opened 32 new warehouse stores last year while closing one. It also opened four design studios. Meanwhile, the company's comparable-store sales (which refers to sales from stores that have been open for more than 12 months) were up 9.2%. Floor & Decor also delivered a 13% increase in adjusted earnings to $2.76 per share during the year.
However, the company's 2023 outlook doesn't look good at first glance. Floor & Decor expects 2023 revenue of $4.68 billion at the midpoint of its guidance range, which would be a 9.5% increase over last year. Additionally, it expects comparable store sales to drop 1.5% at the midpoint, while analysts anticipate a drop in adjusted earnings to $2.71 per share. It is worth noting that the company expects a tepid year despite its plan to open 32-35 new warehouse stores.
Floor & Decor's lukewarm guidance for 2023 can be attributed to steep declines in existing-home sales thanks to rising mortgage rates. The National Association of Realtors is anticipating a 6.8% decline in existing-home sales this year to 4.78 million, and Floor & Decor management expects this to weigh on the company's sales growth. The company will be resorting to price reductions to move its products, and that's going to negatively impact its comparable store sales growth.
However, analysts expect the company's growth to pick up from next year.
FND Revenue Estimates for Current Fiscal Year data by YCharts
That's not surprising, as Floor & Decor estimates that it has a total addressable market worth $49 billion to $54 billion. The U.S. hard surface flooring market alone is expected to generate nearly $20 billion in revenue next year as customers move away from soft flooring such as carpets. This bodes well for Floor & Decor since it leads the hard surface flooring market with a share of 57%. It is also worth noting that the company's share of this market increased by 13 percentage points from 2012 to 2021.
This explains why Buffett's Berkshire has gradually raised its stake in Floor & Decor in the past couple of years. Berkshire first initiated a stake in Floor & Decor in the third quarter of 2021, buying 817,000 shares of the specialty retailer. It raised its stake in the next couple of quarters and now holds 4.78 million shares, which translates into a 4.5% stake.
Now, Floor & Decor should be able to maintain healthy growth rates over the long run thanks to its solid market share and the good health of the industry it is operating in. That's why savvy investors may want to buy this Buffett stock before it is too late. It is trading at an attractive 2.2 times sales even after rallying impressively in 2023, giving investors a nice entry point into a company that has turned a $300 investment into $880 since going public in April 2017.
