The Top Three Wise Investment Choices in Buffett's Portfolio at Present
Warren Buffett has amassed substantial profits for the long-term investors of Berkshire Hathaway over the years. The renowned investor's buy-and-hold approach has motivated countless individuals to attempt implementing his strategy. The best approach to learn on your own is to scrutinize the stocks that this conglomerate purchases and sells.
Currently, the Berkshire Hathaway portfolio comprises investments in over thirty companies that were either selected by Buffett himself or one of his investment deputies. Among these, three of our website contributors believe that Amazon (AMZN -0.76%), Ulta Beauty (ULTA -0.29%), and American Express (AXP -0.73%) are excellent investment opportunities at the moment.
Do not underestimate the dominance of e-commerce
*Jennifer Saibil* (Amazon): It's hard to believe that only two years ago, concerns about Amazon's future were prevalent among investors. Its sales growth was slowing down, it had just reported its first annual net loss in more than a decade, and it appeared to be losing its edge.
However, in late 2022, ChatGPT launched its generative artificial intelligence (AI) platform, revolutionizing the technology sector and reinvigorating major tech companies, including Amazon. Since then, Amazon has released a series of AI solutions, and its AI business already boasts a multi-billion-dollar run rate.
The future AI opportunity is enormous. CEO Andy Jassy regularly discusses the anticipated shift in company IT spending to the cloud, and it's not insignificant - only 10% of IT spending is currently on the cloud. He expects a turning point when the transition accelerates, and Amazon will be well-positioned to reap the benefits when it does. The company's AWS sales growth accelerated by 19% in the third quarter, and clients who aspire to participate in the generative AI revolution recognize the need to utilize a cloud platform such as AWS.
Although Amazon's significant investments are primarily in AI solutions for AWS clients, the company is leveraging this technology across its operations. It now offers third-party sellers tools that can create full marketing campaigns and promotional videos from a single image. It's utilizing its vast data stores and machine learning to drive its advertising program, which continues to outperform other segments in sales growth.
A word of caution: Do not underestimate Amazon. It has incredible momentum right now, and its AI platform is the future. You can purchase the stock at this moment at a price that is close to its lowest valuation in a long time, and if you hold it through the expected short-term fluctuations, you should be amply rewarded in the long term.
This traditional investment appears to be fashionable once again
*Jeremy Bowman* (Ulta Beauty): At the beginning of the year, Berkshire Hathaway purchased shares of cosmetics retailer Ulta Beauty for the first time, and in many ways, it resembles a Buffett-style investment.
Ulta is a leader in the cosmetics industry, with more than 1,400 stores in the United States - in addition to its approximately 800 store-in-store venues at Target locations - challenging its peer Sephora. However, the stock has experienced a decline this year as the company's sales growth has weakened, offering investors the opportunity to acquire shares of this longtime success story at a reduced price.
Although Ulta's business may be maturing, its growth potential is still substantial. Interest rates are expected to decrease, which should help bolster consumer confidence - and that should fuel a resurgence for Ulta and its stock. Moreover, during its Investor Day conference, the company revealed its intention to speed up the pace of new store openings, with an ambitious goal of expanding its footprint to more than 1,800 stores. Additionally, it is witnessing strong adoption of its loyalty program, targeting 50 million members by 2028.
As a company, Ulta enjoys several competitive advantages. Most of its full-line stores feature hair salons, providing customers with an additional reason to visit them. This service cannot be replicated by e-commerce competitors. Furthermore, Ulta's stores are much larger than other pure-play beauty retailers - essentially, they are superstores boasting a wide range of products and brands, making Ulta a one-stop shop for beauty enthusiasts.
Ulta currently offers investors a compelling value with a price-to-earnings ratio of 15, and the company has announced a new $3 billion share repurchase program. It's not surprising that Berkshire Hathaway took advantage of the stock's discount to purchase shares.
This century-old company continues to discover new avenues for growth
*John Ballard* (American Express): American Express has been a staple of Berkshire Hathaway's portfolio for over 30 years. Its impressive growth this year reflects why Buffett continues to hold its shares.
American Express employs a solid business strategy by using cardholder perks and special offers to attract new customers who, in turn, regularly use their cards and generate merchant fees. This spending-focused business model should continue to flourish as the economy grows over the long term.
In the third quarter, revenue experienced a new high, growing by 8% year-over-year, and this top-line growth also fueled strong growth in earnings. Management lifted its full-year revenue and earnings guidance, now forecasting 2024 earnings per share between $13.75 to $14.05.
Buffett highly regards the financial firm's brand reputation. The allure of American Express is evident in its victories at attracting younger clientele. Millennials and Gen Z individuals comprise the company's swiftest-expanding demographic, contributing approximately 80% of fresh U.S. accounts obtained for its golden card during the previous quarter.
American Express equities are traded at an estimated price-to-earnings ratio of around 21, which is rather steep for a financial service enterprise. However, it remains inside the stock's historical trading bandwidth. In case consumer spending increases, it might ignite a surge in cardholder spending. Given that analysts forecast the company's earnings to expand at an annualized rate of 15% over the subsequent five years, those investing in the stock now could potentially benefit from impressive returns.
After seeing Berkshire Hathaway invest in Ulta Beauty, many individuals might consider following a similar strategy in their own finance and investing efforts. By scrutinizing the companies that Berkshire Hathaway purchases, individuals can gain insights into potential investment opportunities.
In light of Berkshire Hathaway's investment in American Express, some might consider including this century-old company in their portfolio. The continued growth and emphasis on attracting younger clientele make American Express an appealing option for long-term investors.
