Image source: The Motley Fool
Warren Buffett has repeatedly called Apple one of the best businesses he’s ever seen. Hence why the stock currently accounts for over 40% of Berkshire Hathaway‘s $318bn of invested assets.
However, there are other Buffett stocks worthy of consideration for 2024 and beyond. Here are two of them.
Born in the cloud
First up is Snowflake (NYSE: SNOW). This is a cloud-native data warehousing platform designed to store, transform and analyse business data.
Now, if that doesn’t sound remotely like a Buffett stock, that’s because it might not be. Instead, it was likely bought by Todd Combs, one of Berkshire’s investment officers. He’s also CEO of GEICO, the car insurance giant owned by Berkshire. And GEICO is a long-time customer of Snowflake.
Anyway, the firm helps its customers make sense of big data. It sits on top of cloud infrastructure like Amazon Web Services and Microsoft Azure, helping its customers break down data silos and improve business performance.
In Q2, the firm reported revenue of $674m, up 36% year on year. Its net revenue retention rate — a measure of earned revenue from existing customers — was 142%. That’s extremely high.
Meanwhile, its total customer numbers rose 5% to 8,537. In the UK, these include the likes Sainsbury’s, Deliveroo and London Stock Exchange Group.
However, the firm is still loss-making, with revenue derived from a usage-based model. This means the firm could see a slowdown in spending on its platform as large enterprises trim budgets.
Another concern for me is that the stock currently trades on a very high forward price-to-sales (P/S) ratio of around 17.
Having said that, Morgan Stanley expects the company to grow revenue at 31% annually over the next five years. If it can do this and become profitable, which isn’t guaranteed, the valuation could prove reasonable.
As a shareholder, though, I’d like to assess Q3 earnings on 29 November before committing any more money.
Cards over cash
The second stock, Mastercard (NYSE: MA), is much more of a Buffett-like investment.
That’s because the digital payments company possesses a very wide economic moat. Its 3.3bn cards and tens of millions of merchant partners create a network effect that’s almost impossible to replicate.
Indeed, its global payments network is rivalled only by Visa (another Buffett holding) in most of the world.
The firm takes a small cut of every transaction on its network. And because of its scale — it processed $8.2trn in gross dollar volume in 2022 — those small cuts soon add up. In fact, they helped it generate free cash flow of $10.1bn last year!
The share price has nearly doubled in five years.
There are three things that I find very attractive about Mastercard’s business model:
- It offers inflation protection, because as prices rise, so does its slice of every transaction
- Unlike banks, it doesn’t take on credit risk and simply facilitates payments
- Trillions more transactions are set to shift from cash to card by 2050
Looking forward, increasing adoption of stablecoins and cryptocurrencies that bypass Mastercard’s network could become a threat. But given the recent high-profile failures in the sector, I doubt crypto will become part of the mainstream payments system any time soon.
If I wasn’t already a shareholder, I’d buy the stock to hold for the next decade.