If this is your mindset, then the current state of the markets is a buying opportunity. Today’s prices offer an excellent entry point but which companies do you invest in?
Here are 3 Buffett stocks to keep on your radar:
Bank of America
Recessions can increase charge-offs and loan delinquencies so bank stocks aren’t an obvious place to scout for bargains. Yet Warren Buffett isn’t alone in holding a large position in BofA. Billionaire Ken Griffin of Citadel bought nearly 4.7 million shares of BAC in the first quarter.
As of this writing, shares of Bank of America Corp (NASDAQ:BAC) are down over 31% year to date and the current economic conditions wouldn’t usually scream, “Buy bank stocks!” However the Federal Reserve has raised interest rates within a falling stock market. As interest rates rise, banks like BofA usually benefit.
BofA is the most interest-sensitive of the banks, making it a strong candidate for smart investors. As interest rates rise in response to inflation, which hit a 40-year high of 9.1% in June, BofA will make billions on variable-rate outstanding loans.
When looking to the future, BofA is also well-positioned as it shifts towards greater digitalization. Active digital users increased from 37 million to 42 million in the past three years, and digital sales grew by 23%, which is more cost-effective. As the number of loans completed online or via mobile app increases, BofA will be able to consolidate some of its branches and lower its expenses.
During the company’s investor presentation in April, management said that a 100-basis-point parallel shift in the interest rate yield curve would generate an estimated $5.4 billion in added net-interest income over 12 months. Since March, the Fed increased its benchmark interest rate by 150 basis points, so BofA is well-positioned to profit from its variable-rate loans.
Another stock in the financial sector that Warren has in his portfolio is Visa (NASDAQ:V). Year to date, Visa is down just over 5% and has dropped around 15% over the past twelve months. However, when looking at this stock’s five-year history, shares have increased by more than 110% and the future looks bright for Visa.
To generate revenue, Visa depends on consumers and businesses to spend money. As the economy slows, people spend less money. However, this scenario is a double-sided coin because recessions don’t typically last long. If you were to invest in Visa now, which owns 54% of all credit card network purchase volume in the U.S., you could potentially benefit from years of economic expansion.
The global payments industry is anticipated to grow from $1.5 trillion in 2021 to $2.9 trillion by 2030 — and Visa is positioned to capitalize on that growth. With a market cap of $437 billion, Visa is the largest publicly traded fintech stock and often beats expectations.
According to Visa’s fiscal year 2021 report, total payments volume was $10.4 trillion, up 18% from the prior year, and net revenues were up 10%, reaching $24.1 billion. Examining the company’s Q2 2022 results, net revenues hit a record $7.2 billion, an increase of 25%.
Visa also offers a steadily growing dividend; the quarterly payout currently is $0.375.
Visa is strictly in the payment processing game and avoids lending. Because the company doesn’t need to set aside capital to cover loan losses, it should bounce back quickly when the economy picks up.
In September 2020, Snowflake (NASDAQ:SNOW) pulled off the largest IPO ever by a software company, raising $3.4 billion. Over the past two years, SNOW has been one of the market’s most expensive stocks, but like most tech companies, this cloud-based data warehousing specialist has had a tough year. Shares have declined over 55% year to date, and investors interested in buying shares are taking notice.
SNOW showcases impressive revenue but is not yet profitable, so even at its discounted price, it’s far from a value stock. The company still has much to prove. Despite that, SNOW showcases several sustainable competitive advantages and a market-beating growth rate, which is why this stock has remained popular among investors.
Snowflake solves a common challenge of moving data across competing cloud infrastructure service platforms. It makes data sharing seamless for its users as its cloud infrastructure is built atop many of the most popular cloud services. By breaking down silos, businesses can access actionable intelligence and gain deeper insights.
This cloud-based data warehousing company stands out because clients are given more control over expensing. Instead of locking clients into recurring subscriptions, Snowflake’s customers pay for the amount of data they store and the number of Snowflake Compute Credits they use. It is tough to ignore SNOW’s triple-digit growth last year and market-beating net revenue retention rate that is approaching an astonishing 200%.
Snowflake’s product and model have advantages over rivals, and the company’s outlook looks strong over the long term. Snowflake stated that product sales could grow to nearly $10 billion by 2029, yet many investors are struggling with SNOW’s premium valuation. Based on its growth, this stock is one to watch, and if you’re willing to hold shares for the next ten years, you may regret not buying on the dip.