Want to beat the market? Pay attention to what Warren Buffett is buying.
Shares of his holding company Berkshire Hathaway have beaten the market by leaps and bounds over the decades. Right now, two of Buffett's current stock picks look ready to soar.
NYSE: V
Key Data Points
This Buffett stock is almost too good to be true
You know the saying: If something seems too good to be true, it probably is. The key word here is "probably." In some instances, investors can get the best of both worlds, and that's the case right now with payment processor Visa (V +0.64%).
Berkshire currently has a $2.2 billion stake in the company. Visa runs a business model with a wide economic moat that generates huge profits, while also benefitting from the immense power of network effects. What price has the market assigned to such an incredible business? Currently, Visa shares trade at just 29 times earnings -- about the same as the average S&P 500 stock.
How does one of the market's most profitable, highest-quality businesses not trade at a premium to the rest of the market? This looks like a mispricing that could be resolved very quickly.
You're likely familiar with Visa as a brand and may have one of its credit or debit cards in your pocket right now. But did you know that the company controls 61% of the market for credit and debit cards in the U.S.?
Just three companies control the rest. It's a highly consolidated industry, with only a few major players, and Visa is the largest, by far. This gives it pricing power in an asset-light industry, resulting in high profits, high returns on equity, and sustained growth rates.
The issues holding back the stock right now are short term. Earnings growth is slowing after a post-pandemic surge, and concerns over the economy, consumer spending and regulatory issues add more near-term uncertainty.
But Visa remains the perfect Buffett stock: Even a poor management team couldn't hold back the valuable structural advantages Visa has when it comes to its market share and profitability. Visa is trading in line with the rest of the market, and this looks like a chance to invest in a blue chip stock that can be held for a lifetime.
V Price-to-Earnings Ratio data by YCharts.
This company will be a growth monster
Buffett isn't necessarily known as a growth investor. But there's one stock in his portfolio right now that's a monster when it comes to sustaining high growth rates for long periods of time.
Few American investors know about this company, which operates solely in Latin America. But that hasn't stopped Berkshire from betting more than $1 billion on the company's shares.
I'm talking about digital bank operator Nu Holdings (NU +2.64%) -- one of the most underrated stocks on the market today. The company launched in 2013 offering a simple debit card to consumers in Brazil. Today, it has more than 100 million customers. And despite the company's $70 billion market cap, revenue still is rising by more than 60% per year.
What's Nu's secret? It dared to go where the market wouldn't.
Before the company's launch, Latin America was dominated by a handful of incumbent banks that charged high fees for simple services using old-school physical branches. Nu upended the industry by offering its services directly to consumers through a smartphone.
This approach cut costs considerably, allowing Nu to compete aggressively. The smartphone approach also allowed it to interact with customers and roll out new services and features much more quickly than the stodgy competition.
Nu stock doesn't look cheap on the surface and the shares trade at 44 times earnings. But sales and profits are growing so quickly that this pricey multiple should look like a bargain. Based on next year's estimates, the shares trade at 33 times earnings -- only a slight premium to the market.
You'll need to stay patient with this pick, but Nu should prove to be one of the best growth stocks on the market over the next few years.
