Trained under the tutelage of famous investor Benjamin Graham, Berkshire Hathaway CEO Warren Buffett went on to employ the core tenants of value investing to tremendous effect. But there are also some growth-dependent stocks that are held in the Berkshire portfolio that could go on to deliver stellar long-term returns.
While growth stocks struggled over the last year due to rising interest rates and other macroeconomic pressures, the dynamic could start to shift this year. With many experts now expecting that the Federal Reserve will deliver one more 25-basis-point rate increase in May and then pause on raising interest rates, now could be a great time to begin dollar-cost averaging to beaten-down tech stocks.
If you're open to taking on above-average risk in pursuit of explosive returns, read on for a look at two growth stocks in the Berkshire Hathaway portfolio that are worth buying right now.
Image source: The Motley Fool.
1. Snowflake
Trading at a seemingly astronomical 16 times this year's expected sales, Snowflake (SNOW -1.53%) has a valuation profile that's unlike any other in Berkshire's equity portfolio.
SNOW PS Ratio (Forward) data by YCharts.
Snowflake also has the unusual distinction of being a stock that Berkshire invested in on the day of its initial public offering (IPO) -- something Buffett hadn't done since Ford went public way back in 1956. What exactly makes the data-services company so special?
Snowflake's Data Cloud allows businesses to combine and analyze information from otherwise siloed cloud-infrastructure services. Big-data analytics, machine learning, and artificial intelligence stand to be some of this century's most influential technology trends, and Snowflake is providing tools that are making it possible to act and build on a much wider range of valuable data.
The company is also providing a platform for building and running applications that natively feature its data-warehousing and analytics capabilities, and these features could become powerful selling points for businesses looking to develop and scale analytics-heavy apps.
And while Snowflake has a heavily growth-dependent valuation, the business has been expanding at a rapid pace. After growing product revenue roughly 70% last year and recording a non-GAAP (adjusted) free-cash-flow margin (FCF) of 25%, Snowflake anticipates posting the same FCF margin and growing product revenue 40% to reach approximately $2.7 billion this year even in the face of macroheadwinds. Looking further down the line, the data specialist expects to grow product revenue to $10 billion in its fiscal year ending January 2029 and still be holding steady at that 25% adjusted FCF margin.
With massive growth potential still ahead and the stock trading down roughly 65% from its high, Snowflake looks like a worthwhile buy for risk-tolerant investors.
2. StoneCo
StoneCo (STNE 0.43%) is a leading provider of payment-processing services in Brazil. Admittedly, it's also been a provider of lending services that have heavily underperformed. While it occupies a very small position in Berkshire's total stock portfolio, the company has the distinction of being one of the few fintech companies that the investment conglomerate is invested in.
In addition to macroeconomic pressures that have generally been quite hard on fintech stocks, StoneCo's valuation has been pressured due to bad debt held by its credit business. The company had been relying on Brazil's national registry system to guide its loan underwriting, and this created issues as the COVID-19 pandemic and other issues drove business failures and pushed the value of StoneCo's loan book into negative territory.
As a result of these challenges, the company's share price is down approximately 88% from its all-time high. But at current prices, the stock looks like a worthwhile buy for risk-tolerant investors.
At the end of the fourth quarter, StoneCo estimated that it still had 398.7 million Brazilian reals (roughly $79 million based on today's exchange rate) in bad debt on its books, but the company has discharged or sold off most of its bad debt. More importantly, its core payment-processing services segment continued to serve up strong results.
Primarily driven by its payments business, StoneCo managed to grow revenue 44% year over year in Q4. The company's non-GAAP (adjusted) net income also came in ahead of expectations at $46.4 million, up from a loss of $6.4 million in Q4 2021.
STNE PE Ratio (Forward) data by YCharts.
While the business has been growing at a rapid clip, it's still valued at roughly 18 times this year's expected earnings and 1.5 times expected sales. Based on its recent earnings trajectory, StoneCo's adjusted earnings could feasibly cover the remaining bad debt on its books this year, and the business still has plenty of room for growth ahead.
