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Warren Buffett is one of the greatest investors of all time, and few wise individuals would challenge that notion. Still, many investors don’t use the same value investing philosophy Buffett employs at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). However, looking inside the company’s portfolio can reveal solid insights from which all investors can learn.
Two businesses Buffett holds that I think are great long-term investments are Snowflake (NYSE: SNOW) and Visa (NYSE: V). These two companies are incredibly different yet have strong tailwinds blowing in their favor.
Image source: The Motley Fool.
Snowflake
Snowflake is exactly the opposite of a stock you’d think Buffett would invest in; it’s a fast-growing tech player in the data cloud space. Snowflake allows its customers to store, query, share, and utilize the data it generates to drive business decisions and feed 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 don’t get locked into unreasonable contracts from one source.
Another selling point is its pay-as-you-go pricing model that enables customers to pay only for the storage they need and when they want to run different analytics on their data. While this could be risky during an economic downturn, it is paying off hugely right now. During the first quarter of its 2023 fiscal year (ended April 30), Snowflake’s net retention rate was an astounding 174%.
This metric means existing customers spent $1.74 for every $1.00 last year. Product revenue was up 84% year over year (YOY) to $394 million; however, the company posted a $188 million operating income loss. This loss was primarily due to a $143 million stock-based compensation bill, a non-cash expense for Snowflake.
For Q2, management expects product revenue to grow 72% YOY at the midpoint and 66% for the whole year. However, at this stage in Snowflake’s life, it’s difficult to demand profits as the company is rapidly spending to capture as much of the $90 billion could data platform market opportunity.
The stock is still highly valued at 28 times sales, but this valuation is much more reasonable than the 100 times sales it traded for last November. With the stock down around 45% from its all-time high, it is trading around its initial public offering (IPO) listing price (not the price it first traded at, around $240). Buffett purchased his initial stake for around $120; now, you have the opportunity to buy the stock for about $130 versus nearly $400 six months ago.
Visa
Visa is more of a stock you’d expect Buffett to own. It’s practically a money pipeline that processed $2.8 trillion in payments during Q2 (ended March 31) alone. Visa makes its money by taking a slice of every payment it processes. However, it makes the most money on cross-border transactions, as it charges a premium for currency exchange.
The past two years saw the COVID-19 pandemic shutting down virtually all international travel. Now that countries are opening their borders and people are traveling again, Visa stands to benefit.
During Q2, Visa’s revenues rose 25% YOY, with its non-GAAP earnings per share (excluding one-time impacts during last year’s quarter) increasing 30% to $1.79. In addition, cross-border volume, excluding intra-Europe, was up 47%, showing how the world opened up.
However, Visa is experiencing some headwinds due to Russia’s actions in Ukraine. As a result, the company suspended operations there, which accounted for about 4% of its net revenues in 2021 and 2022. While Visa will take a hit because of this loss, its current growth rate more than makes up for this revenue drop.
Visa currently trades for around 34 times earnings, slightly higher than it has historically traded.
Data by YCharts. PE ratio = price-to-earnings ratio.
This valuation poses a slight risk to purchasing Visa stock now; however, the company still has plenty of room to run now that society has progressed away from cash. It’s also still recovering from the lost cross-border payment volume due to the pandemic. With plenty of growth left for Visa, this Buffett stock makes an excellent purchase alongside Snowflake’s rapid growth.
These two businesses have solid growth prospects, and investors can purchase them well off their all-time highs. Buffett believes in these two, and I think you should as well.
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Keithen Drury has positions in Snowflake Inc. and Visa. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares), Snowflake Inc., and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls 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.
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