Stoneco (STNE) is a leading provider of payment solutions for e-commerce businesses and merchants in Latin America.
In Q3, the company reported revenue of approximately $390 million and EBIT of nearly $33 million.
The platform has attracted over 2.3 million SMBs yet the stock has seen a significant decline of over 40% this year as political challenges in Brazil and a rising interest rate environment acted as headwinds.
The dip in share price appears to be an opportunity. Continuing on the valuation theme, StoneCo is among the most compelling bets in Buffett’s portfolio. By our estimates, StoneCo fair value sits at $15.19 per share, suggesting the stock could gain as much as 44%.
American Express (AXP) is Berkshire’s fifth largest holding. Unlike Visa and Mastercard, American Express operates as both a credit provider to cardholders and as a transaction processor on its own network. As a result, it can generate revenue from numerous sources:
- annual cardholder fees
- transaction fees
- interest charges
Collectively, these act as a buffer during slow economic periods.
Another tectonic shift favoring American Express is the ever-growing transition to digital transactions versus cash.
But the company has even more bullish tailwinds to support its investment thesis.If were to summarize the bullish themes behind American Express, they would be as follows:
- Management has been aggressively buying back shares
- Strong earnings should produce a stable and growing dividend stream
- Valuation is compelling
We ran a cash flow analysis on American Express and arrived at an intrinsic value of $192 per share, which could result in 23.6% upside if realized.
It took years for Berkshire Hathaway to snap up shares of Amazon, yet it still has massive upside potential in our view. There are plenty of reasons to like Amazon.
Firstly, earnings are expected to increase this year, and studies show share prices and earnings correlate strongly.
A primary driver of higher earnings stems from Amazon’s cost-cutting measures. Recently, the company announced a significant reduction in staff, with a total of 18,000 employees being laid off.
Secondly, a recession – though a virtual certainty – is expected to be mild according to most bank analysts. If that is true, and share prices discount the future, Amazon could pop before the recession ends.
Thirdly, valuation is compelling for Amazon. When we ran the numbers and computed fair value based on a discounted cash flow forecast analysis, Amazon had upside to $136 per share.