Berkshire Hathaway currently has dozens of different holdings in its vast $281 billion public equities portfolio. Some positions are huge, like Apple and American Express. These get a lot of the attention.
But there are also much smaller holdings, like this one financial stock that has generated a total return of 428% in the past decade (as of June 20). It only represents 1% of the conglomerate's portfolio. Are the shares poised to continue heading higher?
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Driving the war on cash
Despite having a $657 billion market cap, Visa (V 2.31%) is just a tiny position in Berkshire's portfolio. Investors shouldn't let the small size take away from how outstanding of a business this is. One important reason why is because of a secular trend that has driven ongoing growth.
Visa benefits from the so-called war on cash, as digital forms of payment are becoming more widely used. As credit cards and debit cards, for instance, find greater adoption at checkout, Visa gains because it can handle more payment volume over time. In the latest fiscal quarter (the second quarter of fiscal 2025 ended March 31), the business processed a whopping $3.9 trillion in total payment volume. This drove 9% year-over-year revenue growth.
In the U.S., 83% of consumers used cash when buying something, more than any other payment method, according to data from the Federal Reserve Bank of Atlanta. This demonstrates how much opportunity Visa still has to steal share away from cash usage, even in the largest economy and perhaps the most developed financial system.
Difficult to disrupt
It seems these days investors should be worried more about how the businesses they own or that they are interested in owning can potentially be disrupted. Technology, the internet, and the advent of artificial intelligence can have an impact on different industries. From an investment perspective, it's important to understand how companies are positioned to defend against certain threats.
In Visa's case, it has a wide economic moat that protects it. The most critical factor is the presence of a powerful network effect. The huge number of merchant acceptance locations on one side, and billions of active cards on the other, make the system incredibly valuable to all stakeholders. Visa improves for its users the larger it gets, too.
Visa is ingrained in how our economy functions, ensuring that things run smoothly and money can be moved around. Unless there is a new solution that is basically 10 times better than the current system, I don't see how the company gets disrupted anytime soon.
A lot of attention recently has been placed on stablecoins. While the merits are understandable, like faster and cheaper transactions, it's hard to believe that a significant percentage of consumers would choose to change their spending habits, moving away from credit cards and toward stablecoins. Unless there is a notable shift that starts to become obvious, there isn't anything to worry about for now.
Aiming to beat the market
Finding stocks that can outperform the market over an extended period of time is a winning outcome. Visa has been this stock over the past decade. However, I'm not confident that this Buffett stock can produce a better return than the market. Shares trade at an expensive price-to-earnings ratio of 34. Consequently, I see there being downside risk that the valuation multiple contracts in the future.
But I have almost zero doubt that Visa shares will be higher five or 10 years from now. That's because the company's earnings per share have increased at a double-digit pace for a very long time, a trend I see continuing for the foreseeable future. Investors hoping for huge returns, though, might want to temper their expectations.
