Want to beat Warren Buffett at his own game? There are currently two shares available Berkshire Hathaway‘s portfolio is trading below Buffett’s original purchase price.
If you believe in the Oracle of Omaha, these two stocks should be at the top of your buy list.
A rare high-tech bargain
Buffett has avoided investing heavily in technology for decades. That has changed dramatically in recent years. Berkshire’s largest position is currently Apple — a stake worth approximately $135 billion.
What changed? A big contributor is that Buffett now shares control with a few trusted lieutenants, including Todd Combs and Ted Weschler. Combs or Weschler reportedly was behind Berkshire’s stake in Apple — one of the company’s most profitable holdings in recent history.
It seems likely that Combs or Weschler—or perhaps someone else—is responsible for Berkshire’s current position in Snowflake (NYSE: SNOW)a cloud computing company based in Bozeman, Montana. According to filings, Berkshire first bought shares in the second half of 2020. At the time, the stock was priced at about $240. Today, it’s worth about $130. It’s a relatively small position for Berkshire, valued at about $1 billion, but this seems like a great opportunity to buy one of its positions at a steep discount.
Snowflake was once a market darling, trading at a price-to-sales ratio of 150. Today, shares trade at just 14 times sales. The problem is slowing sales growth. “The company’s revenue growth was explosive in 2020, but has slowed dramatically,” explains Fool contributor Justin Pope. “Sales grew ‘only’ 32% year over year in the most recent quarter.”
Still, the company is currently free cash flow positive. It’s adding more customers to its growing technology portfolio, and its net revenue retention rate is around 130%, meaning its customers are willing to pay more for its services. After the downturn, this seems like a great way to mimic Berkshire’s investment at a rare discount.
Buffett still believes in this problematic value stock
When it comes to Buffett’s stock picking, few have been worse than Buffett’s stock picking Kraft Heinz Co (NASDAQ: KHC). Buffett bought HJ Heinz in 2013 and guided it to a merger with Kraft Foods a few years later. According to documents, he has owned shares in the combined company since 2015, when the shares traded for about $75 each. Today they trade hands for just $32.
What went wrong? Consumer spending trends have shifted significantly toward non-traditional brands, including an onslaught of new competition. Meanwhile, inflation has limited growth and profitability. These pressures remain, but the stock’s cheap valuation is hard to ignore.
Wall Street analysts expect the company to grow earnings about 4% per year over the next five years. That’s meager growth, but the stock’s valuation reflects that. Kraft Heinz shares currently trade at just 14 times earnings, with a dividend yield of about 5%. S&P500By comparison, it trades at 28 times earnings – a 100% premium.
The cheap valuation and hefty dividend could be enough to attract many potential investors. But it’s the underlying brand portfolio that should excite you most. Kraft Heinz owns an enviable collection of well-known brands, including Kraft, Heinz, Oscar Meyer, Philadelphia, Ore-Ida, Cool Whip, Capri Sun, Jell-O, Velveeta and many, many more. Buffett has always been a big believer in the power of brands, which explains why he has retained a $12 billion position in the company – about a quarter of the total shares outstanding.
Compared to Snowflake, Kraft Heinz is a classic Buffett bet. It’s a profitable, iconic company with enduring brand power and a cheap valuation. Don’t expect huge gains, but Kraft Heinz looks promising for any investor looking for cheap Buffett stocks.
Should you invest $1,000 in Snowflake now?
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple, Berkshire Hathaway, and Snowflake. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
2 Warren Buffett Stocks That Are Screaming Buys Right Now was originally published by The Motley Fool
