For the better part of the past six decades, it has Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has dominated Wall Street’s broadest index, the American one S&P500. While the S&P 500 has delivered a total return, including dividends, of approximately 38,000% since the mid-1960s, the aptly named “Oracle of Omaha” has overseen a cumulative return of 5,544,952% on its Class A shares (BRK.A) of his company. from the closing bell on September 27.
Warren Buffett is generally an open book and is more than willing to share the traits and characteristics he looks for when investing in so-called “great companies.” For example, he tends to focus on profitable, proven companies with sustainable competitive advantages and rock-solid management teams.
In addition, a majority of the 43 stocks in Berkshire’s roughly $315 billion investment portfolio pay dividends.
But no two Buffett stocks were created the same. As we enter the fourth quarter of 2024, two unstoppable stocks in Berkshire’s $315 billion portfolio stand out as screaming buys — and likely will remain so for the foreseeable future.
Sirius XM Holdings
The first great Buffett stock that makes for a no-brainer buy in the fourth quarter (and beyond) is satellite radio operator Sirius XM Holdings (NASDAQ: SIRI).
Sirius XM could have been an intriguing arbitrage opportunity for the Oracle of Omaha and his investment team.
In December 2023, Sirius XM unveiled plans to merge with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group. Liberty Media had been Sirius
Merging them into a single share class, which took place after the closing bell on September 9, and achieving a 1-for-10 reverse stock split to make stocks more attractive to institutional investors could be the appeal that Buffett and his investing lieutenants, Todd Combs and Ted Weschler, found seductive.
But there’s a lot more to like about Sirius XM Holdings than just its simplified share structure and the prospect that institutional investors will find it more attractive after its unique split.
For example, it is the only licensed satellite radio operator. While this does not mean there is no competition, being a legal monopoly does provide the company with strong power over subscription prices. Of Spotify technology By recently increasing subscription costs, Sirius XM has a golden opportunity to follow suit and boost sales in the near future.
Unlike traditional radio operators, Sirius XM also has a somewhat transparent and predictable cost structure. While royalties and talent acquisition expenses will vary from quarter to quarter, transmission and equipment costs are generally no different. If Sirius XM can grow its subscriber base over time, some of its costs should remain at the same level and provide room for margin expansion.
However, the biggest competitive advantage that Sirius XM brings is its revenue diversity. Advertising is responsible for the majority of revenue generated by terrestrial and online radio providers. For Sirius
Long-term economic expansions often benefit advertising-driven businesses. But when a recession does occur, ad-based radio providers will struggle. Because Sirius
What makes Sirius XM such a screaming buy is its rating. The company’s price-to-earnings (P/E) ratio of 7.5 is more or less an all-time low since the company went public thirty years ago. Go for an annual return of 4.4% and you have a striking bargain!
Visa
The second unstoppable Warren Buffett stock that’s making for a screaming buy for the rest of 2024 (and beyond) is a payment processor Visa (NYSE:V).
Visa was in the news for the wrong reasons last week. The leading domestic payments facilitator will reportedly be charged by the US Department of Justice for violating antitrust laws related to its dominance of the debit card market. While Visa has denied any wrongdoing, legal issues could weigh on sentiment in the short term.
Another thing this potential DOJ antitrust case has done is create a price dislocation that investors shouldn’t pass up.
While the DOJ’s focus is on Visa’s debit card business, Visa is also a major player when it comes to processing credit transactions. Based on data from eMarketer, Visa was responsible for $6.45 trillion in credit card network purchases domestically in 2023, more than double the $2.73 trillion MasterCard completed. Being the top payment processor in the world’s largest consumer market isn’t a bad thing.
But there are also huge opportunities for Visa beyond domestic borders. Double-digit growth in cross-border payments volume has been consistently reported, reflecting the fact that most fast-moving emerging markets are chronically underbanked. Visa has sufficient pockets and sufficient cash flow to enter these markets organically, and will occasionally rely on acquisitions as a means to expand its reach (for example, the purchase of Visa Europe in 2016).
While it’s a subtle difference from some of its peers, Visa has avoided becoming a lender. The ability to double the dip and generate merchant fees and interest income/fees from cardholders has gained momentum American Express decades higher. But lending also exposes AmEx and its peers to credit delinquencies and credit losses during economic downturns. Since Visa is not a lender, it is not required to set aside capital to cover credit losses, which is a subtle but significant competitive advantage.
Time is also very much on Visa’s side. It is a highly cyclical business that benefits from increases in consumer and business spending during extended periods of economic expansion. While recessions are a completely normal and inevitable part of the economic cycle, they have historically been short-lived. Patience has paid off handsomely for Visa shareholders since it went public in March 2008.
The final piece of the puzzle that makes Visa a screaming buy is, of course, its historically cheap valuation. Shares can now be bought for less than 25 times forward earnings per share, which represents a 13% discount to the average forward price-to-earnings ratio over the past five years.
Furthermore, with the exception of the brief COVID-19 crash in February-March 2020, Visa has not been cheaper in the last half-decade. Here’s what makes this market-leading Buffett stock a clear buy.
Should You Invest $1,000 in Sirius XM Now?
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American Express is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Mastercard, Sirius XM and Visa. The Motley Fool holds positions in and recommends Berkshire Hathaway, Mastercard, Spotify Technology and Visa. The Motley Fool has a disclosure policy.
2 Unstoppable Warren Buffett Stocks That Are Screaming Buys for the Rest of 2024 (and Beyond) was originally published by The Motley Fool
