Berkshire Hathaway (BRK.A 1.16%)(BRK.B 1.09%) CEO Warren Buffett was trained by Benjamin Graham, the father of value investing. By internalizing and applying the skills and principles he learned from Graham and developing his own strategies, Buffett went on to become one of history's most successful moneymen.
While the Oracle of Omaha is best known as a value investor, there are also stocks in the Berkshire Hathaway portfolio that have growth-oriented, forward-looking valuations. For investors who are willing to embrace some uncertainty and potential volatility, these Buffett-backed bets could be particularly appealing as long-term investments.
If you're looking for potentially explosive opportunities, read on to see why two Motley Fool contributors think that investing in these stocks owned by Berkshire will make you richer in 2024 and beyond.
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Snowflake is a beaten-down AI stock
Parkev Tatevosian: Snowflake (SNOW 8.42%) is a relatively new stock in the Berkshire Hathaway portfolio. Berkshire invested $735 million in the cloud-based data platform provider just before it went public in September 2020. So far, the investment hasn't worked out for Berkshire as Snowflake stock is down 52% off its high in recent years.
Snowflake benefits from the rising effectiveness of artificial intelligence (AI) and the role data plays in developing large language models. I believe that could be an opportunity for long-term investors who believe in the potential of AI expansion.
SNOW Cash from Operations (TTM) data by YCharts.
Snowflake as a company is growing fast and has increased its revenue from $97 million in 2019 to $2 billion in 2023. If the role of data continues to dominate the development of AI, it would be reasonable to assume Snowflake's revenue will continue its upward trajectory. Perhaps more importantly, Snowflake's revenue growth has led to increased cash flow from operations ($721 million in the trailing 12 months, to be precise). That figure was negative before July 2021.
The sell-off in Snowflake stock means it's available to new investors at a relatively fair valuation. Sure, its forward price-to-sales ratio of 17 isn't cheap, but considering its growth prospects, increase in cash flow, and its role in the development of AI, I'd argue it's a fair price to pay for long-term investors. After all, Snowflake stock has rarely been cheaper according to this metric in the previous three years.
Still down 82%, StoneCo stock is a great buy
Keith Noonan: StoneCo (STNE +0.00%) is a Brazil-based financial technologies company that had its initial public offering (IPO) in October 2018. The company quickly attracted a $183 million investment from Berkshire Hathaway but has seen volatile trading in its history as a publicly traded company.
NASDAQ: STNE
Key Data Points
Thanks to strong momentum for StoneCo's payment processing business and lending unit, its share price climbed above $94 per share in February 2021. Unfortunately, StoneCo's lending business collapsed soon after because the company had been relying on incomplete data in Brazil's national registry system. Making matters worse, many businesses failed or halted operations due to the coronavirus pandemic.
The fintech specialist ended up with a substantial amount of bad loans in its portfolio. It took big losses on the unit and temporarily paused its operations. StoneCo went through a tough stretch but persevered. Investors now have an opportunity to capitalize on an overlooked stock that's posting very strong business results.
While StoneCo is once again ramping up new loan offerings for small and medium-sized businesses (SMBs), its payments business never stopped posting strong performance. The payments segment added more than 316,000 net customers last quarter, bringing its total client count to roughly 3.3 million -- up 40% year over year. This performance helped push the company's overall revenue up 25% annually, and non-GAAP (adjusted) net income more than quadrupled in the period.
StoneCo estimates that it will increase its adjusted net income at an average annual rate of 31% each year from 2024 through 2027. There's some speculation involved here, but with the stock trading at under 13.5 times this year's expected earnings and the business showing excellent momentum, investors can buy into this potentially explosive growth story at an incredible price.
Snowflake and StoneCo could be Berkshire's most explosive stocks
Snowflake and StoneCo have characteristics that make them unusual when compared to most of the other stocks in Berkshire's portfolio. For starters, both of these growth stocks are riskier, on average, compared to most of Buffett's bets.
On the other hand, the added level of risk also comes with the potential to deliver explosive returns for investors -- and both businesses look very promising. With impressive margins, strong sales growth, and huge market opportunities still on the horizon, Snowflake and StoneCo could wind up being some of the biggest gainers in the Berkshire portfolio over the next five years and beyond.
