Berkshire Hathaway, the holding company managed by legendary investor Warren Buffett, outperformed the market in 2022, as it does a majority of the time. It's not keeping pace so far in 2023, up just 2% while the S&P 500 is up more than 7%. But the year is just getting started, and there is the occasional year Buffett doesn't beat the market. That's a great lesson in investing -- you don't have to get it right all the time to be a successful investor.
Buffett does, though, have a habit of picking winning stocks. If you have $300 available to invest after paying off any debt and saving for an emergency fund, Nu Holdings (NU 3.33%), Floor & Decor (FND +0.41%), and American Express (AXP 0.90%) are three top Buffett stocks to invest in right now.
1. Nu holdings: The high-growth stock
Nu Holdings is a Brazil-based fintech that operates a digital bank, Nubank, and has expanded to a large suite of digital financial services. It's demonstrating triple-digit percentage revenue growth, adding millions of customers and entering new markets, and it's not showing any signs of slowing down.
Revenue increased 112% in the 2022 fourth quarter, and Nu added more than 20 million customers in 2022, ending the year with 74 million. Nu's growth strategy centers around offering low-cost digital financial services and cross-selling services to customers. Average revenue per active customer increased 37% year over year, demonstrating the power of this strategy. It has 44% of the adult population in its home nation of Brazil as customers, and it's making progress in its newer markets of Mexico and Colombia.
NYSE: NU
Key Data Points
In addition to digital banking and ancillary financial services, it's also expanding its credit business. Deposits increased 55% year over year, and the interest-earnings portfolio was up 82%. Banks benefit from higher interest rates because they make more money by lending out deposits, but they also deal with the challenge of higher defaults. Nu moved quickly to change its pricing structure as interest rates rose, and the new pricing policy combined with increasing deposits allowed it to decrease its cost of funding. This led to an increase in net interest margin, and it bodes well for Nu's future as a competitive -- and profitable -- bank.
Nu is a fairly new Berkshire Hathaway purchase, and so far, it's lost 53% of its value since its 2021 initial public offering. It's now trading at 7.6 times trailing-12-month sales. That's a reasonable valuation for such a high-growth stock that's also well on its way to profitability, and with a price tag of less than $5 per share, you can get a lot of shares for $300.
2. Floor & Decor: The slow-and-steady stock
Floor & Decor sells hardware flooring through its chain of mega-warehouses. It's a simple no-brainer model that's demonstrating success as the company expands throughout the U.S., increasing consumer loyalty through offering an enormous selection of products and focusing on customer service.
Sales were brisk in 2022 despite the sagging economy, increasing 24% year over year in fiscal 2022 (ended Dec. 29) to $4.3 billion.
Comparable store sales increased 9%, demonstrating that not all sales growth is coming from new stores, and that its customer loyalty strategy is bearing fruit. It's all the more impressive in the current inflationary environment, which builds confidence in its prospects. Along with that, net income increased 5% over last year, although operating margin was pressured, falling from 9.9% to 9.3%.
Floor & Decor is still a fairly small outfit with 191 stores as of the end of 2022. It opened 35 warehouses and four design studios in 2022 and sees the opportunity for 500 stores over the next eight to 10 years. That gives it a long growth runway, in addition to increasing comparable sales and profitability.
NYSE: FND
Key Data Points
Floor & Decor stock is already up 40% this year, and the shares trade at a price-to-earnings ratio of 34. That's not incredibly cheap, but it's nicely below its three-year average of 40, making this a great time to buy before it soars.
3. American Express: The proven dividend stock
Finally, to round out these recommendations, American Express can be the ballast stock of a diversified portfolio. It pays a growing dividend and has beaten the market over time, and it's both secure and has robust market opportunities.
It's easy to see why it's a classic Buffett stock, and it's actually one of his longest, and largest, holdings. It could be undervalued, trading at less than 17 times trailing-12-month earnings, considering its business opportunities and income-generating power. It has a strong moat in its industry-leading consumer credit card program that targets an affluent customer base and breeds loyalty, and it has been able to tweak it to target new generations of cardholders. Chief Executive Officer Stephen Squeri noted that it would be difficult for a competitor to challenge its strong brand, along with its niche customer base, fee-based membership model, and integrated payments system.
NYSE: AXP
Key Data Points
Revenue increased 25% year over year in 2022, driven by a revival in its core travel and entertainment segment. American Express' cardholders are generally higher earners and are more resilient in challenging times. Net income was down 7% from last year due to an increase in its provisions for credit losses, which it normally increases when the risk of default rises. Management feels like it's in a good position in 2023, and expects revenue to increase 16% along with a rise in earnings per share.
American Express' dividend yields nearly 1.5% at the current price. The stock is up 11% so far this year, and it's an excellent value pick to add to your portfolio.
