Warren Buffett once said, "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." That advice leaves room for interpretation, but investors can be relatively certain they are buying what Buffett believes to be good stocks if they select from equities owned by Berkshire Hathaway.
As for what qualifies as good timing, investors must remember that valuation always matters, but only when contextualized by growth prospects. What constitutes an expensive valuation for one stock may be cheap for another. Investors can be relatively certain of their timing if they choose stocks priced reasonably in relation to their likely growth trajectories.
Building on that, Berkshire has stakes in Snowflake (SNOW +1.61%) and Visa (V 0.68%), and both stocks bear consensus ratings of "buy" on Wall Street. Indeed, Snowflake has a median 12-month price target of $195 per share, implying 20% upside. And Visa has a median 12-month price target of $280 per share, implying 19% upside. More importantly, both stocks trade at reasonable valuations.
Here's what investors should know.
NYSE: SNOW
Key Data Points
1. Snowflake
Snowflake helps businesses manage and make sense of big data, and it does so while unifying multiple workloads that used to require a plethora of individual solutions. For instance, its platform supports data lakes for storage, data warehousing for analytics, and data sharing for collaboration. That last point means Snowflake is "uniquely positioned" to enable artificial intelligence (AI) workloads, according to CEO Frank Slootman.
Public cloud providers like Amazon Web Services and Microsoft Azure offer similar solutions, but they lack the interoperability that Snowflake brings to the table. Its infrastructure-neutral platform can be deployed across all three major public clouds, eliminating the complexity of moving data between different clouds. No other product on the market offers the same functionality and flexibility, and that unique value proposition has translated into tremendous customer demand.
In the second quarter Snowflake saw its customer count climb 26% to 8,537, and the company reported a retention rate of 142%, meaning the average customer spent 42% more over the past year. In turn, revenue increased 37% to $640 million and non-GAAP net income improved to $81 million, up from $5 million in the prior year.
Looking ahead, Snowflake says its addressable market will hit $290 billion by 2027, and its position as the logical center of gravity for enterprise data puts powerful tailwinds at its back, chief among them the growing demand for AI. But Snowflake is the market leader in data warehousing, so even in the absence of AI, the company stands to benefit as more organizations look to unlock value in their proprietary data.
With that in mind, management expects annual revenue to reach $10 billion by fiscal 2029 (ends Jan. 31, 2029), which implies annual revenue growth of 37% until then. That forecast makes its current valuation of 21 times sales look reasonable, especially when the three-year average is 64 times sales.
For context, Snowflake is the riskier of the two investment ideas discussed in this article. While it has separated itself from the competition, its economic moat is less durable than Visa's. But risk-tolerant investors should still feel confident in buying a few shares of this stock today given that Snowflake possesses an enviable position in what promises to be a multi-hundred-billion dollar market.
NYSE: V
Key Data Points
2. Visa
Visa runs the largest payments network in the world, making it a lynchpin of the global economy. Its network accounted for nearly 39% of payment card transactions in 2022, topping China-based UnionPay by almost 500 basis points and besting Mastercard by about 1,500 basis points. Visa cards are also accepted at more than 100 million merchant locations worldwide, a metric matched only by Mastercard.
That scale and ubiquity are the source of a powerful network effect and cost advantage. Visa cards are so commonly accepted that consumers take it for granted, which means merchants are effectively obligated to accept Visa, adding momentum to the flywheel. Additionally, Visa consistently earns higher profit margins than smaller competitors like Mastercard and American Express because it can spread expenses over more transactions. That means it can reinvest more aggressively in its business.
Visa continued to churn out solid financial results in the most recent quarter. Revenue climbed 12% to $8.1 billion on strong momentum in payment volume and processed transactions, and non-GAAP net income increased 9% to $2.16 per diluted share. Investors can expect similar results in the future.
Boston Consulting Group expects global payments revenue to increase at 6.2% annually through 2027, a slight deceleration from 8.3% annually during the previous five-year period. But Visa has consistently outpaced the broader industry due to scale and brand authority, so investors can confidently expect annual revenue growth in the high-single digits or low-double digits in the coming years.
Indeed, Morgan Stanley expects Visa to earn $40.6 billion in revenue in 2025, implying annual revenue growth just north of 10%. That makes its current valuation of 15.4 times sales seem palatable, especially when the three-year average is 18.5 times sales. Investors should feel confident in buying a small position in this growth stock today.
