Want to beat Warren Buffett at his own game? Right now, there are two stocks in Berkshire Hathaway‘s portfolio trading below Buffett’s original purchase price.
If you believe in the Oracle of Omaha, these two stocks should top your buy list.
A rare high-tech bargain
For decades, Buffett avoided investing heavily into tech. That has changed dramatically in recent years. Berkshire’s biggest position, after all, is currently Apple — a stake worth roughly $135 billion.
What changed? A big contributor is that Buffett now shares control with a few trusted lieutenants, including Todd Combs and Ted Weschler. Combs or Weschler was reportedly behind Berkshire’s Apple stake — one of the firm’s most profitable positions in recent memory.
It seems likely that either Combs or Weschler — or perhaps someone else entirely — is responsible for Berkshire’s current position in Snowflake (NYSE: SNOW), a cloud computing company based in Bozeman, Montana. According to filings, Berkshire first purchased shares in the second half of 2020. Back then, the stock price was around $240. Today, it’s around $130. It’s a relatively small position for Berkshire, valued at around $1 billion, but this looks like a great opportunity to buy one of its positions at a steep discount.
Snowflake was once a market darling, trading at a price-to-sales ratio of 150. Today, shares trade at just 14 times sales. The issue has been slowing sales growth. “The company’s revenue growth was explosive in 2020 but has dramatically slowed,” explains Fool contributor Justin Pope. “Revenue grew ‘just’ 32% year over year in the most recent quarter.”
Still, the company is currently free cash flow positive. It’s adding more and more customers to its growing tech portfolio, and its net revenue retention rate is around 130%, meaning its customers are willing to pay more for its services. After the pullback, this looks like a great way to mimic Berkshire’s investment at a rare discount.
Buffett still believes in this troubled value stock
When it comes to Buffett’s stock picks, few have turned out worse than Kraft Heinz Co (NASDAQ: KHC). Buffett purchased H.J. Heinz in 2013, guiding it to a merger with Kraft Foods several years later. According to filings, he owned shares in the combined company since 2015, when shares traded for roughly $75 apiece. Today, they trade hands at just $32.
What went wrong? Consumer spending trends have shifted heavily toward non-traditional brands, including an onslaught of new competition. Inflation, meanwhile, has limited growth and profitability. These pressures remain, but it’s hard to deny the stock’s cheap valuation.
Over the next five years, Wall Street analysts expect the company to grow earnings by around 4% per year. That’s a paltry growth rate, but the stock’s valuation reflects that. Right now, Kraft Heinz shares trade at just 14 times earnings with a dividend yield of around 5%. The S&P 500, for comparison, trades at 28 times earnings — a 100% premium.
The cheap valuation and hefty dividend could be enough to attract many potential investors. But it’s the underlying brand portfolio that should get you most excited. Kraft Heinz owns an enviable collection of well-known brands, including Kraft, Heinz, Oscar Meyer, Philadelphia, Ore-Ida, Cool Whip, Capri Sun, Jell-O, Velveeta, and many, many more. Buffett has always been a big believer in the power of brands, which explains why he’s retained a $12 billion position in the company — roughly one-quarter of the total outstanding shares.
Compared to Snowflake, Kraft Heinz is a classic Buffett bet. It’s a profitable, iconic company with durable brand power and a cheap valuation. Don’t expect massive gains, but Kraft Heinz looks promising for any investor looking for bargain Buffett stocks.
Should you invest $1,000 in Snowflake right now?
Before you buy stock in Snowflake, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Snowflake wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $774,526!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of June 24, 2024
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Snowflake. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Are Screaming Buys Right Now was originally published by The Motley Fool
