Berkshire Hathaway Chief Executive Officer Warren Buffett is arguably the most successful investor in modern history. When he purchased a controlling stake in the company in 1965, the stock was trading at roughly $18. Today, a single share of Berkshire's Class A stock costs roughly $545,000. If you owned a $1,000 position in the company when Buffett took over and held onto your shares, your holdings would now be worth well over $29 million.
Buffett has primarily built Berkshire's incredible, world-beating success by investing in U.S.-based businesses and assets. But the Oracle of Omaha has made some notable bets on international stocks -- and some of these lesser-known plays could wind up delivering incredible returns.
If you're interested in Buffett-backed stocks with explosive potential, read on to see why buying this overlooked stock and holding for the long haul looks like a great move right now.
This beaten-down stock could be a huge winner
StoneCo (STNE 2.52%) is a Brazil-based financial technologies company. Its core business provides point-of-sales hardware and payment processing services. The company also has a retail-management software business and a segment that provides credit to small-and-medium-sized businesses (SMBs), although the latter unit is in the early stages of being restructured after a major collapse.
NASDAQ: STNE
Key Data Points
StoneCo had its initial public offering in 2018 at $24 a share, and it attracted investment from Berkshire Hathaway shortly after. Thanks to very strong growth for the company's payments-processing business and some encouraging momentum for its credit unit, the fintech's share price climbed above $94 in February 2021.
Unfortunately, the wheels started to fall off the company's credit business shortly after the stock peaked. StoneCo had relied on Brazil's national registry to assess the creditworthiness of its SMB customers, and the shortcomings of the system wound up tanking the company's lending unit. These headwinds are now in the rearview mirror, and it looks like StoneCo could be poised for a breakout.
An overlooked gem in Berkshire's portfolio
Berkshire currently owns roughly 3.4% of StoneCo. The position accounts for just 0.1% of Buffett's company's total stock portfolio.
While StoneCo constitutes a very small portfolio holding for Berkshire, I think it has a good chance of being one of the company's best-performing stocks during the next five years. Brazil is Latin America's largest economy and largest country by population, and StoneCo is at the forefront of powerful financial-services trends that should translate into continued performance momentum.
The business's revenue increased 25% year over year in the third quarter to reach 3.1 billion Brazilian reals, or roughly $638.9 million based on the current exchange rate. Non-GAAP (adjusted, and not in accordance with generally accepted accounting principles) income surged 302% to hit 435 million reals, or about $89.6 million.
STNE PS Ratio (Forward) data by YCharts
Trading at under 21 times this year's expected earnings and less than 2.4 times expected sales, StoneCo continues to look very cheaply valued in the context of the momentum of the business.
From 2024 through 2027, the company forecast a 31% adjusted earnings compound annual growth rate. If the company manages to hit the target, I expect that investors who take a buy-and-hold approach to the stock at today's prices will score explosive returns. And while projections are somewhat speculative by nature, it's worth noting that StoneCo has actually been significantly outperforming its own estimates during the past year.
In addition to strong business momentum, StoneCo also has a strong balance sheet. The company has net cash of roughly 4.86 billion Brazilian reals, or about $1 billion.
Valued at $5.7 billion, StoneCo is squarely in mid-cap territory, and has huge room for long-term growth. With the company's share price still down 80% from its high, investors have an opportunity to score big wins with this underappreciated, Buffett-backed stock.
