Want to beat Warren Buffett at his own game? Right now, there are two stocks in Berkshire Hathaway‘s portfolio is trading below Buffett’s initial purchase price.
If you believe in the Oracle of Omaha, these two stocks should be at the top of your buying list.
A rare high-tech bargain
For decades, Buffett has avoided investing heavily in technology. That has changed dramatically in recent years. After all, Berkshire’s largest holding is currently Apple — a stake worth about $135 billion.
What’s changed? The fact that Buffett now shares control with a few trusted lieutenants, including Todd Combs and Ted Weschler, is a big part of the reason. Combs or Weschler is believed to have been behind Berkshire’s stake in Apple, one of the company’s most profitable positions in recent memory.
It seems likely that either Combs or Weschler – or perhaps someone else – is responsible for Berkshire’s current position. Snowflake (NYSE: SNOW)a cloud computing company based in Bozeman, Montana. According to filings, Berkshire bought its first shares in the second half of 2020. At the time, the stock price was about $240. Today, it’s about $130. This is a relatively small position for Berkshire, valued at about $1 billion, but it seems like a great opportunity to buy one of its positions at a steep discount.
Snowflake was once a market darling, trading at a price/sales ratio Today, shares trade at just 14 times sales. The problem slowed sales growth. “The company’s revenue growth was explosive in 2020, but has slowed significantly,” said explain Fool contributor Justin Pope. “Revenue was up “only” 32% year-over-year in the most recent quarter.
Still, the company is currently free cash flow positive. It’s adding more customers to its growing technology 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 emulate Berkshire’s investment at a rare price.
Buffett still believes in this struggling stock
When it comes to Buffett’s stock picks, few have been worse than Kraft Heinz Co. (NASDAQ:KHC). Buffett purchased HJ Heinz in 2013, guiding it to a merger with Kraft Foods several years later. According to filings, he had owned shares in the combined company since 2015, when shares were trading at around $75 apiece. Today, they trade for just $32.
What went wrong? Consumers are increasingly turning to non-traditional brands, including the arrival of new competition. Inflation, meanwhile, has limited growth and profitability. Those pressures persist, but it’s hard to deny the stock’s low valuation.
Over the next five years, Wall Street analysts expect the company to grow its earnings by about 4% per year. That’s a paltry growth rate, but the stock’s valuation reflects that. Kraft Heinz shares currently trade at just 14 times earnings with a dividend yield of about 5%. S&P 500for comparison, trades at 28 times earnings, a 100% premium.
The cheap valuation and high dividend could be enough to attract many potential investors. But it’s the underlying brand portfolio that should excite you the most. Kraft Heinz has an enviable collection of well-known brands including Kraft, Heinz, Oscar Meyer, Philadelphia, Ore-Ida, Cool Whip, Capri Sun, Jell-O, Velveeta and many others. Buffett has always believed in the power of brands, which explains why he retained a $12 billion position in the company, about a quarter of the total shares outstanding.
Compared to Snowflake, Kraft Heinz is a classic Buffett bet. It’s an iconic, profitable company with enduring brand power and a cheap valuation. Don’t expect massive gains, but Kraft Heinz looks promising for any investor looking for cheap Buffett stocks.
Should You Invest $1,000 in Snowflake Right Now?
Before buying Snowflake stock, consider this:
THE Motley Fool, Securities Advisor The team of analysts has just identified what they believe to be the 10 best stocks for investors to buy now…and Snowflake was not one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia I made this list on April 15, 2005…if you invested $1,000 at the time of our recommendation, you would have $774,526!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. Stock Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*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 Buy Right Now was originally published by The Motley Fool
