Under Warren Buffett's leadership, Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) has become one of the largest companies in the world, and much of that success can be attributed to timely acquisitions and smart investments he helped engineer. In fact, Berkshire's investment portfolio is worth more than $300 billion, and more than half of that total comes from unrealized capital gains.
However, even great investors have some investing regrets. Here are three stocks Buffett wishes he had bought sooner.
Amazon
Berkshire first took a stake in Amazon (AMZN 3.43%) in 2019, but Buffett expressed regret on several occasions about not buying the stock sooner. Many investors can probably relate to that sentiment, but Amazon is still a worthwhile investment today.
The company has a strong competitive position in e-commerce, cloud computing, and digital advertising, three markets forecast to grow quickly through the end of the decade.
In e-commerce, Amazon is the go-to shopping destination for many consumers. In fact, its online marketplace powered 38% of digital retail sales in North America and Western Europe last year, and its vast logistics footprint affords the company a durable competitive advantage. Amazon simplifies e-commerce for sellers with fulfillment services and digital advertising solutions, and it improves the e-commerce experience for buyers with fast and reliable shipping. Those offerings make its marketplace even more compelling.
In cloud computing, Amazon Web Services (AWS) is the top vendor of cloud infrastructure and platform services (CIPS). AWS accounted for 32% of CIPS spending in the fourth quarter, and it was recently named the CIPS leader for the 12th consecutive year in a report from IT consultancy Gartner. The report notes that AWS currently offers a broader and deeper portfolio of cloud services than any other vendor. That advantage hints at an extraordinary capacity for innovation, which should keep AWS ahead of its peers for years to come.
Lastly, Amazon is the fourth largest ad tech company in the world, and it continued to gain ground on the market leaders last year. Alphabet and Meta Platforms both reported a 4% decline in ad revenue in the fourth quarter, while Amazon reported 19% growth in ad revenue, meaning the company is taking market share. That success can be ascribed to the popularity of its marketplace, which not only engages consumers, but also generates valuable shopper data that brands can use to target ad campaigns.
Looking ahead, industry analysts expect the e-commerce, cloud computing, and ad tech markets to grow at roughly 14% annually through 2030. But investors can reasonably expect Amazon to outpace the industry average given its healthy balance sheet, brand authority, and strong presence in all three markets. That makes its current price-to-sales ratio of 2.1 look cheap, creating a buying opportunity for patient investors.
Mastercard and Visa
Berkshire first invested in American Express in the early 1990s, and it owned about 10% of the company by 1995. But Berkshire did not start buying Mastercard (MA 0.07%) and Visa (V -0.23%) until 2011. Buffett has since acknowledged that he should have invested in both companies sooner.
The bull cases for Mastercard and Visa are virtually identical: They operate two of the largest payment networks in the world, with acceptance that spans about 100 million merchant locations, according to the Nilson Report newsletter, which analyzes the payments industry. That scale underscores the trust both brands have cultivated, and it forms the foundation of a powerful network effect. Merchants are essentially obligated to accept Mastercard and Visa due to their popularity among consumers.
Scale and brand authority also discourage new competition. Mastercard and Visa already have payment processing infrastructure in place around the globe, and they already have relationships with merchants, consumers, and financial institutions.
A card payments start-up would have to invest significant time and money to assemble similar assets, and even if a hypothetical rival was willing to shoulder that burden, Mastercard and Visa could probably force the company into bankruptcy by undercutting its prices.
Looking ahead, Grand View Research estimates digital payment revenue will increase at 21% annually to reach $361 billion by 2030, fueled by increased adoption of e-commerce and mobile wallets.
Mastercard and Visa are well positioned to benefit from those trends. Both companies are essentially tollbooths along the roads of the global economy, and they earn fees on each payment that touches their networks, whether those transactions are funded by credit cards, debit cards, or mobile wallets.
Currently, shares of Mastercard trade at 36.7 times earnings, a discount to the five-year average of 42.4. Similarly, shares of Visa trade at 32.7 times earnings, a discount to the five-year average of 35.7. Those prices look reasonable given that Mastercard and Visa have strong competitive positions in a rapidly expanding market. Investors should buy a few shares of both growth stocks today.
