Investors do not typically associate Warren Buffett and his team at Berkshire Hathaway with stocks that could go parabolic. Berkshire typically buys better-known positions like Apple, Coca-Cola, and American Express with a value mentality rather than a hope of finding the next great growth stock.
Still, investors must remember that Buffett has handed some of the decision-making to lieutenants with more of a growth philosophy. You can find some growth stocks in the portfolio, like Snowflake (SNOW 3.69%) and StoneCo (STNE 5.01%), which could see massive gains in a bull market.
Snowflake
Berkshire made its first investment before the company's 2020 initial public offering (IPO), eventually acquiring more than 6.1 million shares. Knowing that, Snowflake was almost certainly chosen by Buffett's lieutenants since he has always spoken negatively about buying IPO stocks.
Still, investors have good reason to believe a bet on Snowflake could bring massive profits. Snowflake leads in the emerging data cloud industry. Data clouds allow administrators to store, secure, and control one's data from a centralized location, eliminating the need for data silos that may leave organizations confused about which silo (if any) contains the most accurate data.
Moreover, while cloud companies like Amazon and Microsoft offer data clouds, they tend not to work as well with data supported by competing cloud companies. Snowflake eliminates this problem, allowing it to compete with mega-cap companies despite its market cap of only $56 billion.
Indeed, it has increased in popularity. In the first quarter of fiscal 2024 (ended April 30), the customer count rose to nearly 8,200, a 29% increase from a year ago. Also, since existing customers spent 51% more on average than last year, quarterly revenue of $624 million rose by 48% over a 12-month period.
However, since operating expenses rose at approximately the same pace as revenue, net losses for the quarter increased to $226 million versus $166 million in the year-ago quarter.
None of these struggles deterred Snowflake's stock from rising 19% year to date, and even its 24 price-to-sales (P/S) ratio has not stopped its growth. Investors should also remember that the P/S ratio rarely fell below 100 until the bear market started. Hence, if a new bull market has truly begun, its valuation would likely not deter a parabolic move in Snowflake stock.
StoneCo
Another Buffett investment with massive growth potential is StoneCo. Because the company operates only in Brazil, many U.S. investors do not know about it. It's similar to Block's Square ecosystem in the U.S., as it provides fintech and enterprise software services to businesses.
And like with Snowflake, Buffett's team bought this stock before its IPO, acquiring about 14.2 million shares before reducing its position to around 10.7 million shares near the stock's peak in early 2021.
While that 2020 run-up probably earned Berkshire a huge profit on that sale, COVID-19, rising inflation in Brazil, and other factors temporarily derailed the rest of its StoneCo investment, taking the stock down by more than 90% at one point.
Nonetheless, former CEO Thiago Piau moved to StoneCo's board as a director, and Pedro Zinner has taken the CEO position. Zinner was previously CEO of Brazilian power company Eneva and has sat on StoneCo's board. StoneCo cited Zinner's 25 years of experience in finance, strategy, and risk management as reasons for the hire. He also increased the return on equity at Eneva from under 2% to more than 17% during his tenure, bringing a focus on increased efficiency that could bode well for StoneCo.
Moreover, amid an improving economy and falling inflation, its massive growth has returned. For Q1, the company reported revenue of 2.7 billion reais ($555 million), a 31% improvement over last year. Gains in financial income and activities that included transactions led the growth.
Those increases also helped lead to a net income of 226 million reais ($46 million), up from a net loss of 313 million reais in the year-ago quarter.
Additionally, StoneCo's recovery has started in earnest, with the stock up by around 40% year to date. And even with the recent increase, it supports a P/S ratio of less than 2. This is down dramatically from the peak sales multiple of 44 in early 2021, and with such a history, StoneCo could experience a level of multiple expansion that takes the stock considerably higher.
