You could have made a ton of money over the years by following Warren Buffett's stock picks. He invested early in many iconic companies, including American Express and Coca-Cola. But he also has shown an ability to profit from already massive companies, like his more recent investment in Apple.
What are Buffett's best ideas right now? Three stocks in particular stick out.
This could be the next superstar Buffett stock
Quite often, companies that operate outside the U.S. fall under the radar, even if those companies are listed on U.S. stock exchanges, are run by American founders, and backed by American investors. Nu Holdings (NU +0.47%) is a primary example.
This fintech company has a $60 billion market value and more than 100 million users, yet most Americans have never heard of it. That's because it operates exclusively in Latin America, which boasts more than 650 million residents. If you want to invest in a company with decades of growth ahead of it, Nu is for you.
The company got its start in 2013 after co-founder David Vélez, then a member of Sequoia Capital's investment team, recognized a giant opportunity in Latin America's banking sector. For years, the region's banking sector was dominated by a handful of powerful incumbents charging customers high fees for simple services. Nu's strategy was simple: Bypass the existing financial system by offering low-cost financial services directly through a smartphone.
In 2014, the company had essentially zero customers. Today, it has more than 100 million, including more than half of all Brazilian adults.
Sales continue to grow by double digits every year, and there's very little competition forming to slow Nu's advance. In recent years, it entered the Colombian and Mexican markets, with hundreds of millions of additional Latin Americans remaining as potential customers.
According to Berkshire Hathaway's recent filings, Buffett's holding company currently owns roughly 107 million shares worth around $1.3 billion. Buffett has owned the stock since the company's initial public offering (IPO) in 2021. So far, he hasn't sold a single share. Putting $10,000 to work by purchasing Nu stock is a fantastic way to follow this Buffett stock with decades of growth ahead.
Bet on these terrific businesses
What should you do with your remaining $20,000? Consider splitting it evenly between Visa (V 1.27%) and Mastercard (MA 0.96%) stocks. These two companies have been some of Buffett's best investments this century, and it's not hard to see why.
Visa and Mastercard are, of course, competitors. But it's not that simple. In combination, these two companies control 86.5% of the U.S. credit and debit card market. Just two companies round out the rest of the market.
This extreme market consolidation makes sense. The payment industry is all about networks. Merchants need to accept what customers can pay with, and customers need to pay with something merchants can accept. The result is natural industry consolidation.
Both Visa and Mastercard are considered "asset light" businesses because most of their business is software, which is infinitely scalable at very low cost. This typically results in higher profit margins as the business expands.
This is exactly what we've seen. Since 2010, Visa and Mastercard's profit margins have gone from roughly 30% to 35% to between 45% and 55%. In a nutshell, this is a type of business that only gets stronger over time.
The best option is likely to split an investment into both. That way, you'll diversify your investment away from the actions of a single company, betting instead on the industry's natural dynamics over the long term. That's exactly what Buffett has done. According to the latest filings, Berkshire Hathaway currently owns $2.3 billion of Visa stock and $1.9 billion in Mastercard shares.
Don't have $30,000? No problem. Try starting with $3,000. Even $300 will do. The main goal should be getting your money to work in high-quality businesses like this. Then, like Buffett often does, you can add to your stakes over time.
