OArren Buffett is one of the greatest investors of all time, and few savvy people would argue with that idea. Yet many investors don’t use the same value investing philosophy that Buffett employs at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). However, looking inside the company’s portfolio can reveal solid information that all investors can learn from.
Two companies that Buffett considers excellent long-term investments are Snowflake (NYSE: SNOW) and Visa (NYSE:V). These two companies are incredibly different but have strong tailwinds blowing in their favor.
Snowflake is the exact opposite of a stock you’d think Buffett would invest in; it is a fast-growing technology player in the data cloud space. Snowflake enables its customers to store, query, share and use the data it generates to make business decisions and power models. Because it can combine structured, semi-structured, and unstructured data from multiple cloud providers and sources, its customers can spread their data across multiple cloud providers, so they aren’t locked into unreasonable contracts from from a single source.
Another selling point is its pay-as-you-go pricing model that allows customers to only pay for the storage they need and when they want to run different analyzes on their data. While this can be risky during an economic downturn, it pays off hugely right now. In the first quarter of its fiscal year 2023 (ending April 30), Snowflake’s net retention rate was an incredible 174%.
This metric means that existing customers spent $1.74 for every $1.00 last year. Product revenue increased 84% year-over-year (YOY) to $394 million; however, the company recorded an operating profit loss of $188 million. This loss was primarily due to a $143 million stock-based compensation bill, a non-cash expense for Snowflake.
For the second quarter, management expects product revenue to grow 72% year-on-year at the midpoint and 66% for the full year. However, at this point in Snowflake’s life, it’s hard to demand profit, as the company is spending quickly to capture as much of the $90 billion in data platform market opportunity as possible.
The stock is still highly valued at 28 times sales, but that valuation is much more reasonable than the 100 times sales it traded for last November. With the stock having fallen around 45% from its all-time high, it is trading around its initial public offering (IPO) price (not the price at which it first traded, around 240 $). Buffett bought his initial stake for around $120; now you have the option to buy the stock for around $130 from nearly $400 six months ago.
Visa is more of a stock than you would expect Buffett to own. It’s practically a silver pipeline that processed $2.8 trillion in payments during Q2 alone (ending March 31). Visa makes its money by taking a cut of every payment it processes. However, it makes the most money on cross-border transactions because it charges a premium for currency exchange.
Over the past two years, the COVID-19 pandemic has halted virtually all international travel. Now that countries are opening their borders and people are traveling again, Visa is taking advantage.
During the second quarter, Visa’s revenue grew 25% year-over-year, with its non-GAAP earnings per share (excluding one-time impacts in the last year quarter) increasing 30% to 1.79 usd. In addition, cross-border volume, excluding intra-Europe, is up 47%, demonstrating the openness of the world.
However, Visa is experiencing headwinds due to Russia’s actions in Ukraine. As a result, the company has suspended operations there, which accounted for about 4% of its net revenue in 2021 and 2022. While Visa will take a hit from this loss, its current growth rate more than offsets this drop in revenue.
Visa is currently trading for around 34 times earnings, slightly more than it has historically traded.
This valuation poses a slight risk for buying Visa shares now; however, the business still has plenty of wiggle room now that the company has moved away from cash. It is also still recovering from the volume of cross-border payments lost due to the pandemic. With plenty of growth for Visa, this Buffett stock is a great buy alongside Snowflake’s rapid growth.
Both of these companies have solid growth prospects and investors can buy them well above their all-time highs. Buffett believes in both of these, and I think you should too.
10 stocks we prefer over Visa
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and Visa wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of June 2, 2022
Keithen Drury holds positions at Snowflake Inc. and Visa. The Motley Fool holds positions and recommends Berkshire Hathaway (B shares), Snowflake Inc. and Visa. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.