Berkshire Hathaway CEO Warren Buffett turned 93 on Aug. 30, and it would be an understatement to say that he's lived an incredible life. The famous moneyman stands as one of the most successful investors in history, and he's delivered incredible returns for his company's shareholders and has been a source of wisdom and information for millions of people around the globe.
If you're looking to take a page out of the Oracle of Omaha's investing playbook, read on to see why two Motley Fool contributors think buying these Buffett-backed stocks would be a smart move this month.
Buffett's favorite stock -- by far
Keith Noonan: Buffett has said that most people should just invest in an exchange-traded fund that tracks the S&P 500 index for diversified exposure to the stock market. Given that statement, it might come as a surprise to hear that he's not actually a big fan of diversification, at least not for his own company's stock holdings.
Buffett has described diversification as a "protection against ignorance," and his company has actually taken a highly concentrated approach to its equity portfolio composition. With Apple (AAPL -0.35%) accounting for roughly 47% of Berkshire Hathaway's total stock holdings, there's little doubt as to which stock is Buffett's favorite. And his incredible vote of confidence in the tech company has paid off big time.
Apple stock is up 230% over the last five years and 600% since Berkshire began buying shares in the company back in the first quarter of 2016. More so than any other stock in its portfolio, Apple has played a driving role in pushing Berkshire to market-beating performance over the last seven years.
The tech giant is one of the world's most profitable companies, and much of its earnings power stems from its dominant position in the mobile market. The company's iPhone now accounts for 55% of the U.S. smartphone market and 45% of total global revenue in the category. Even more staggering, Apple's iPhone lines are capturing approximately 85% of total operating profits made on all smartphones sold around the world.
Apple's dominance in the mobile market has also helped it launch and expand a highly profitable software and services segment, accounting for roughly 26% of the company's $81.8 billion in total revenue last quarter. The company isn't resting on its laurels either.
The tech leader will be launching augmented reality glasses and generative artificial intelligence applications in the not-too-distant future and is reportedly working on a smart car. Buffett's massive investment in the stock makes it clear that the famously successful investor is excited about the tech leader's future.
A master in profits
Parkev Tatevosian: One of my favorite Warren Buffett stocks to buy right now is Mastercard (MA 0.07%). The payment services company has a few characteristics that attract my attention: excellent profitability and a competitive advantage. Additionally, the stock is not trading at a prohibitively expensive valuation. Coincidentally, these are characteristics Warren Buffett also appreciates.
Let's start with Mastercard's profitability. In the last decade, its operating profit margin has averaged 54.5%. That rate of profitability is near the top of the charts for businesses worldwide. Mastercard can generate this margin because of the asset-lite business model. It spent decades developing the merchant and buyer network and is now reaping the benefits of years of effort.
That brings me to my next point: its competitive advantage. Any rival wishing to encroach on Mastercard's business cannot do so quickly. Visa, the other big financial services company with similar size and scale, has chosen not to compete against Mastercard on price. This stable business environment allows Mastercard to focus on serving its customers while earning robust profits.
MA PE Ratio (Forward 1y) data by YCharts. PE Ratio = price-to-earnings ratio.
Of course, that sounds great, but if the stock were expensive, it would not be as attractive as an investment. Thankfully, Mastercard is trading at a forward price-to-earnings ratio of 28.4, which, in my opinion, is a fair price for an excellent business like Mastercard.
Apple and Mastercard have strong competitive advantages
Much of Buffett's investing success through the years can be traced to the importance he's placed on backing companies with sustainable competitive advantages. Both Apple and Mastercard have powerful strengths in their respective industries, and competitors will have a very hard time disrupting their businesses. Building positions in both stocks looks like a smart move for those looking to emulate the Oracle of Omaha's investing style.
