Photo credit: www.fool.com
In a climate marked by heightened market volatility, investors may find a beacon of stability in Berkshire Hathaway‘s extensive stock portfolio. Warren Buffett’s proficiency in pinpointing robust companies capable of withstanding economic fluctuations has proven to be a rewarding strategy for Berkshire’s shareholders. Presently, two standout growth stocks within its impressive $271 billion portfolio emerge as prime candidates for investment.
1. Amazon
Amazon (AMZN -1.01%) has made significant strides in delivering robust returns to its investors over the decades, although it took Berkshire Hathaway time to initiate its investment in this e-commerce powerhouse. After acquiring its initial shares in 2019, Berkshire maintained an impressive 10 million shares through the close of 2024. The stock’s attractive valuation, coupled with its formidable competitive edge, positions it as a compelling buy in the current market landscape.
Historically, Amazon’s substantial growth can be attributed to its dominance in e-commerce; however, non-retail revenue streams — primarily from cloud computing, advertising, and third-party fulfillment services — now play a pivotal role in the company’s overall performance. This transition is advantageous, as service-oriented segments typically yield higher profit margins and represent Amazon’s fastest-growing areas.
Amazon Web Services (AWS) has secured over 30% of a burgeoning $330 billion cloud market, as reported by Synergy Research. This leadership not only reinforces Amazon’s standing as the top cloud service provider but also positions the company to capitalize on the exponential rise in demand for artificial intelligence (AI). In 2024, AWS reported an impressive 18% revenue growth, resulting in an annual revenue of $107.6 billion, accounting for 17% of Amazon’s total revenue.
The firm’s advancements in AI will further strengthen its competitive advantages in online retail. With over 600 million Alexa devices installed in households, Amazon is poised to leverage AI technology to enhance consumer experiences, thus streamlining shopping for millions of customers.
As Amazon continues to embed itself into the daily lives of its retail customers and enterprise clients, its stock trades at a notably low valuation of just 16 times its cash from operations per share, the lowest in over a decade. This sets the stage for potentially substantial returns as the company’s growth trajectory progresses.
2. Mastercard
Mastercard (MA 0.81%) ranks among the most profitable firms globally, with nearly a 500% return for shareholders over the past decade. Berkshire held approximately 4 million shares of this robust business, which is characterized by considerable growth prospects, by the end of last year.
While Mastercard’s transactions rely on economic growth, the stock has shown resilience during downturns, such as the market sell-off of 2022. As apprehensions regarding a recession escalate this year, maintaining Mastercard in an investment portfolio is likely to yield beneficial outcomes.
The company’s resilience during economic slowdowns stems from its business model, which does not involve issuing cards or assuming credit risk in the manner of traditional banks. Instead, Mastercard focuses on processing transactions and reaps substantial profits from this endeavor. The business operates on high margins, with only a handful of major credit card networks in competition.
In the previous year, Mastercard processed transactions totaling $9.8 trillion, resulting in a revenue of $28.2 billion, reflecting a 12% increase from 2023. Typically, the company converts approximately 50% of its revenue into profit, reporting a net income rise of 15% to $12.9 billion in the last fiscal year.
The growth potential for this business is extensive. Even with Mastercard accepted at 150 million locations worldwide, there still exists an estimated 1.5 trillion transactions conducted annually via cash and checks. This presents a significant opportunity that Mastercard aims to capture in the coming years, providing positive prospects for investors.
Although Mastercard shares are trading at 37 times earnings, a valuation that may appear steep, it is aligned with the typical metrics for elite growth stocks. Companies with substantial competitive advantages and ample growth potential often command such premiums. Analysts project Mastercard’s earnings to grow by around 14% annually in the forthcoming years, which promises to sustain excellent returns for stakeholders.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. John Ballard does not hold positions in any of the stocks mentioned. The Motley Fool has investments in and recommends Amazon, Berkshire Hathaway, and Mastercard. The Motley Fool maintains a disclosure policy.
Source
www.fool.com