There are about four dozen stocks in the huge portfolio of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)And to be fair, there’s a solid investment case to be made for most of them. However, one of Berkshire’s bank stocks and one of its mega-cap tech holdings look particularly attractive at their current prices. Which of these two stocks owned by the Warren Buffett-led conglomerate is best for you?
A very profitable bank with a bright future
Capital A Financial (NYSE: COF) is one of Berkshire’s smaller bank holdings, with a 2.6% stake in the bank worth “just” $1.6 billion. But for long-term investors, Capital One looks like a tremendous value and has some interesting growth opportunities going forward.
Capital One is best known for its credit card business, and for good reason. Credit cards make up more than half of Capital One’s total loan portfolio, and because of the high-interest rate nature of the credit card industry, they allow Capital One to generate a net interest margin of 6.7%, more than double what most other major U.S. banks typically report. There is ample cash in reserves to cover expected losses, and while Capital One’s net charge-off ratio has increased significantly over the past year, it has stabilized in recent quarters and is at a reasonable level.
There are two other big reasons why I’m bullish on Capital One. First, lower interest rates could be a major catalyst, as they would significantly reduce Capital One’s deposit costs. Capital One is one of the few branch banks that offers online-like interest rates on deposit accounts, so this could be a big tailwind.
There is also the upcoming acquisition of Discover financial services (NYSE: DFS)which would not only dramatically increase the size of Capital One’s credit card business, but also give Capital One its own payments network, creating all sorts of interesting opportunities down the road.
After a recent pullback, Capital One is trading about 12% below its recent highs and more than 10% below book value. To be fair, there are some legitimate risks associated with such a credit-card-heavy banking operation. But the risk-reward dynamic looks very attractive right now, especially if the bank can successfully complete the Discover merger.
Strong growth and an attractive price
Amazon.nl (NASDAQ: AMZN) is down more than 10% from recent highs despite strong growth momentum and improved profitability across the business.
In the second quarter of 2024, Amazon reported net revenue growth of 11% year-over-year. But thanks to CEO Andy Jassy’s focus on efficiency, operating profit increased by a whopping 91%. Net revenue doubled year-over-year, and there was a big improvement in all three of Amazon’s business segments (U.S. sales, international sales, and Amazon Web Services, or AWS).
Don’t make the mistake of thinking that Amazon doesn’t have much room to grow. The flagship AWS business should have a long-term growth opportunity, as the cloud computing industry is expected to more than triple in size by 2032. In fact, with 19% year-over-year revenue growth, it’s the fastest-growing part of Amazon’s business, and it’s also far more profitable than the e-commerce side.
International growth is another key potential growth area, as Amazon.com does not have nearly as dominant a presence in many of its key international markets as it does in the US.
Which Buffett Stock Is Right for You?
Both stocks look attractive at their current valuations, and both have exciting long-term growth opportunities. Both certainly have their risk factors, and while I don’t think investors can go wrong with either one, Capital One seems like a value investor’s dream right now, while Amazon is a growth stock with rapidly rising profitability.
Should You Invest $1,000 in Capital One Financial Now?
Before you buy Capital One Financial stock, consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Capital One Financial wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $662,392!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of September 9, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Amazon and Berkshire Hathaway. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Are Screaming Bargains Right Now was originally published by The Motley Fool
