As usual, Warren Buffett's holding company Berkshire Hathaway is beating the market so far in 2024. Berkshire Hathaway owns a portfolio of about 50 stocks, in addition to several whole companies. Investors looking to beat the market can get great ideas from following Buffett's picks and listening to his many nuggets of wisdom. If you have $300 to invest after paying off debts and saving for an emergency fund, Visa (V -0.23%), Nu Holdings (NU 1.66%), and Floor & Decor (FND 2.66%) are excellent Buffett stocks to buy right now.
1. Visa: Limited competition for its credit card network
Visa has carved out a wide niche in credit card processing with one of Buffett's favorite features: a long-term competitive advantage. It's the largest credit card processing network in the world, with more than $15 trillion in trailing 12-month transaction volume and more than 4.3 billion cards worldwide.
Equally importantly, it hasn't stopped upgrading for a moment. Although it has a wide economic moat right now, it's not without competition that could easily replace it if it slacks off. Chief Executive Officer Ryan McInerney came onto the job last year, but he's a Visa veteran continuing the company's strategy of forging strong relationships with partner institutions and developing new technology to stay on top of its game.
With its dominant position in the global economy, Visa enjoys growth with the economy, making it a top forever stock. In general, its performance mirrors the economy; when people have money to spend, Visa does well, getting a small cut every time a cardholder swipes their card. The inverse of that is true as well, but Visa has been demonstrating strong growth despite current economic volatility. Some of it is a result of the rebound from pandemic-related declines, illustrated by increasing cross-border volume. Total revenue increased 9% year over year in the 2024 fiscal first quarter (ended Dec. 31) to $8.6 billion, and earnings per share (EPS) rose 20% over last year to $2.39.
Visa has incredible and unmatched profit margins that reached 57% in the first quarter, meaning it turned more than half of every dollar of revenue into profit. It also pays a dividend that it steadily increases.
Visa has been a market-beating stock for years, and it should continue to reward investors.
2. Nu Holdings
The digital bank Nu Holdings is one of the only growth stocks in the value-oriented Berkshire Hathaway portfolio. It has some standard Buffett-stock characteristics -- it's a financial company with lots of cash. But it's reporting high growth and capturing share in its home market of Brazil, as well as its newer markets in Mexico and Colombia.
Revenue increased 57% year over year in the 2023 fourth quarter, and it added 4.8 million new accounts for a total of 94 million. Not only do the new accounts drive higher revenue, but Nu has a strategy of upselling and cross-selling new products, converting lower-paying customers into highly engaged users who spend more time with Nu's products and more money on its platform. Average revenue per active customer (ARPAC) continued to increase sequentially, rising from $8.20 last year to $10.60 this year's fourth quarter.
This also feeds into a profitability cycle. Nu wasn't profitable on a generally accepted accounting principles (GAAP) basis when it went public in 2021, but it has now reported six consecutive quarters of net income, increasing from $58 million in the 2022 fourth quarter to $361 million last's comparable period.
Nu also has excellent credit risk management, which is helping it succeed despite regional economic problems. Brazil's economy has been even more volatile than the U.S.'s, with higher inflation and interest rates that exceed 10%. Nu's deposits increased 38% year over year in the fourth quarter to $23.7 billion, and its interest-earning portfolio increased 91% to $8.2 billion.
Nu is becoming one of best growth stocks to own, and it should continue to beat the market for the foreseeable future.
3. Floor & Decor
Floor & Decor is a fairly small warehouse-style chain of stores that sell flooring products. So what caught Buffett's attention? Sometimes it's the simplest models that offer the greatest potential. Floor & Decor is small, and that's precisely why it looks compelling. It's expanding at a fast rate, but it has years of growth ahead just from opening new stores. Before inflation took off in 2022, it was reporting strong comparable sales (comps) growth, which indicates a viable concept with long-term growth potential. That growth has been slowing, and Floor & Decor is feeling pressure across its business right now. But smart investors see the bigger picture.
Sales increased 3.5% year over year for full-year 2023, but comps decreased 7.1%. Operating margin was 7.3%, 2 percentage points lower than the year before, and EPS decreased 18% to $2.28. For 2024, management is projecting a sales increase of about 6.4%, with comps down about 3.5%, and EPS of about $1.95. Fourth-quarter EPS of $0.34, although down from 2022, beat Wall Street's expectations of $0.26 by a meaningful margin.
The company opened 31 stores last year, and it's planning to open 30 to 35 new stores this year. It operated 221 stores as of the end of 2023, and believes it can reach 500 stores during the next eight or so years.
These new stores provide revenue growth opportunities while comps are pressured. In addition to inflation, which makes it harder for customers to make large purchases like flooring, the home improvement industry has been hurt by rising interest rates and a slow housing market. But this is the kind of cyclical pressure that most companies will feel at different points.
Floor & Decor has a long growth runway in new stores, and it operates an efficient model. Now's a great time to buy for long-term gains.
