What does Warren Buffett like? There are several obvious answers based on what is publicly known about the legendary investor -- for example, Cherry Coke and playing bridge.
If we narrowed the question to address only what Buffett likes when it comes to stocks, I think there are also some obvious responses. I'd put having a wide economic moat near the top of the list.
We don't have to look very far to find stocks with strong moats that Buffett likes. His Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) portfolio includes several of them. Which are the best picks for investors? Here are three Buffett stocks with strong moats to buy right now.
1. Amazon
Network effect is a type of moat where the value of products or services increases the more people use them. There aren't many companies with more impressive network effects than Amazon (AMZN 3.43%). The more people shop on its online platform, the more merchants it attracts with more products. That, of course, attracts even more customers.
But Amazon also offers another type of moat -- economies of scale. For example, no rival can touch the company's logistics and supply chain network. This has even enabled Amazon to start a new business with its Supply Chain by Amazon offering.
Why buy Amazon stock now? Two reasons come immediately to mind.
First, the company's efforts to boost profitability are paying off. Amazon's earnings more than tripled year over year to $9.9 billion in the third quarter of 2023. I fully expect to see the company's earnings continue to grow in the coming quarters.
Second, Amazon has a massive growth opportunity with its Amazon Web Services (AWS) cloud platform. The explosion in artificial intelligence (AI) apps will almost certainly drive even more organizations to the cloud over the next decade and beyond. As the largest cloud services provider, AWS is poised to benefit in a major way from this trend.
2. Mastercard
Mastercard (MA 0.07%) claims multiple moats. Like Amazon, the payment processing giant has solid network effects and economies of scale. The more Mastercard's network is used, the more valuable it becomes. It processes billions of transactions per year, which gives it cost advantages.
In addition, Mastercard's brand is a moat of its own. Customers, banks, and merchants know that they can count on the company. There are switching costs associated with moving from Mastercard's network to another. The company also has intangible assets -- specifically, a vast amount of customer data -- that give it a tremendous competitive advantage.
Despite facing some economic uncertainty, Mastercard's business continues to fire on all cylinders. The company reported net revenue of $6.5 billion in Q3, up 14% year over year. Its earnings soared 28% year over year to $3.2 billion.
Over the long term, Mastercard should benefit from the trend of a shift away from cash to digital payments. Growth in e-commerce and in the economies of developing nations should also serve as tailwinds for the company.
3. Visa
Take everything just said about Mastercard and apply it to Visa (V -0.23%) too. Like Mastercard, Visa is a payment processing giant with network effects, economies of scale, a strong brand, switching costs, and intangible assets.
The same long-term trends that should benefit Mastercard should also help Visa. Business is also booming for Visa, with Q3 net revenue jumping 12% year over year to $8.1 billion and earnings soaring 22% to $4.2 billion.
Probably the biggest differentiator between Visa and Mastercard is size. Visa is the larger of the two, with its market cap topping $500 billion. It also commands a greater market share in payment processing.
Unsurprisingly, Buffett's position in Visa is a little bigger than his stake in Mastercard. However, I think that both of these stocks should be long-term winners for the Oracle of Omaha -- and for other investors -- thanks in large part to their solid moats.
