Berkshire Hathaway owns dozens of stocks in its huge $288 billion portfolio. There's one tiny position that the Warren Buffett-led conglomerate owns that has generated a total return of 13,690% since its initial public offering in May 2006. Investors might want to learn what this business is.
As of May 14, this financial stock is up 9% in 2025. At the same time, the S&P 500 index is little changed. Is it time to add this Buffett holding to your own portfolio and keep it for the next two decades?
Image source: Mastercard.
Business as usual
It's like watching a great athlete continue to compete at the highest level, even though they have been in the league seemingly forever. Observers can start to take things for granted. This might be the case with Mastercard (MA -0.15%). The company keeps performing well, at a time when it seems like the rest of the economy is worried about the possibility of a recession on the horizon.
During the first quarter, Mastercard reported revenue of $7.3 billion, which was up 14% year over year. This top-line figure was driven by total payment volume that increased 9% to a whopping $2.4 trillion. A continuing trend has been strength in cross-border volume, rising 15%.
"While there is uncertainty in the world, we've built a diversified, resilient business model and proven strategy that enables us to effectively navigate various economic environments," Chief Executive Officer Michael Miebach said in the press release. Wall Street average analyst estimates call for revenue to increase 13% this year.
Reasons to be bullish
Besides the persistent momentum from a revenue perspective, as just mentioned, I believe there are three critical reasons investors should like Mastercard.
The first has to do with the company's economic moat. Mastercard benefits from a powerful network effect. It has 3.2 billion cards that are active and in use. On the other side, there are 150 million merchants that accept them as a method of payment. With more cardholders, merchants find incredible value because there's a larger pool of customers. And as the number of acceptance locations grows, cardholders have greater ability to spend virtually anywhere.
Another reason to be bullish is because of just how profitable Mastercard is. During the past five years, the company's operating margin has averaged 56.5%, showcasing how much in revenue flows to the bottom line. Running a vast payment platform that has low capital expenditures is a very lucrative endeavor.
And lastly, it's not difficult to believe that Mastercard will register durable growth over the long term. The business gains on the back of economic growth, which leads to greater spending. What's more, the rise of cashless transactions supports more payment volume running through Mastercard's network.
Is it ever cheap?
Mastercard is a wonderful company, and the valuation reflects this. As of this writing, the stock trades at a price-to-earnings ratio of 40.5. This is certainly a steep price to pay, but it's in line with the stock's trailing-five-year average. In other words, the shares rarely look cheap from a valuation perspective.
It might never be a smart move to try to correctly time the market. In this case, however, I hold the view that the valuation doesn't provide a meaningful margin of safety. My strategy is to continue monitoring the stock and wait for a pullback.
On the other hand, it makes sense why some investors would think differently. Mastercard is one of the world's truly elite businesses. Maybe dollar-cost averaging over time is an option for those considering owning the stock for the next two decades.
