Warren buffett is known for his value approach to investing, and that was on display again in Berkshire Hathaway‘S (NYSE: BRK.A)(NYSE: BRK.B) transactions in the third quarter. It took new positions Domino’s Pizza And Pool Corp.two solid value plays.
Both stocks fit the classic Buffett scheme. They are established brands and leaders in their industry. Although they target different demographics, they both play a strong role in the economy and are resilient to macroeconomic pressures. But if you thought these were the only types of stocks in Berkshire Hathaway’s portfolio, you’d be wrong. While Buffett likes a good price, he has also had some growth stocks in his portfolio from time to time.
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Today, there are at least two stocks in Berkshire Hathaway’s stock portfolio that I would put in the growth box that are outperforming Berkshire Hathaway and the S&P500 the past year. Let’s take a look at what they are, why Buffett might own them, and whether investors should consider buying them too.
Berkshire Hathaway was the first to take a position Amazon (NASDAQ: AMZN) in 2019, long after it had already minted millionaires. It’s not clear exactly when he bought it, but it’s up 126% in the past five years, around the time he took a position.
At the time, no one knew that just months away a global pandemic would occur that would change the world and the way companies do business. But what investors did know is that Amazon was and is the largest e-commerce company in the US, and that it had already developed a second company that was at the top of its industry in cloud computing.
These are two industries that were growing rapidly at the time and where Amazon had an advantage, and all of that still holds true today. Because the country has an intense culture of innovation, it is likely to maintain its position. And today, its potential is driven by artificial intelligence (AI).
Buffett doesn’t care much about AI. He doesn’t deny that it could be something great, but he says he doesn’t know enough about it to judge it. His investment in Amazon is about its dominant position in industries that drive the economy.
At its current price, Amazon trades at a price-to-earnings ratio of 42, near its lowest level in years. That still makes it look like a good value strategy. The growth that comes from AI could entice other investors, and having Buffett’s stamp of approval for the company’s other strong businesses should give investors confidence that this is safer than a strictly AI play. .
The other clear growth stock in Berkshire Hathaway’s portfolio is Now Holdings (NYSE: NOW). Now a fintech powerhouse in Latin America offering banking and other financial services, all through a digital app. Headquartered in Brazil, it also serves Mexico and Colombia with a smaller and growing platform.
Now has shown phenomenal growth since going public in 2021, and Berkshire Hathaway was an early investor, an unusual setup for the company, which is more known for buying entire companies or taking positions in publicly traded companies. Berkshire Hathaway invested $500 million in a financing round just before the IPO.
CEO David Velez said at the time: “The new equity financing is the result of Nubank’s accelerated and sustainable growth.” The key was that even before it went public and reported positive net income, it was clear that growth was sustainable. It was already the largest fully digital bank in the world with 40 million customers, and today it has 109.7 million and growing.
Since then, Nu has become sustainably profitable, with a positive net result every quarter since the third quarter of 2022. While it’s not the typical Buffett stock, it’s still a banking stock that plays an important role in the economy it operates in and has a robust credit and banking business. It has tons of cash from deposits that it uses to drive healthy lending, and that’s more of a classic Buffett setup.
Both Now and Amazon outperformed the S&P 500 and Berkshire Hathaway itself over the past year.
Now is by far the most growing stock, but both stocks stand out from typical Buffett stocks because they thrive on innovation and have enormous growth opportunities, unlike classic Buffett value stocks that have slower, steady growth. If you’re looking for growth stock candidates, Amazon and Now are both excellent choices.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil holds positions in Nu Holdings. The Motley Fool holds and recommends positions in Amazon, Berkshire Hathaway, and Domino’s Pizza. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
Is Warren Buffett Buying Growth Stocks? These two top Buffett stocks are crushing the market. was originally published by The Motley Fool
