The new year is well underway, and with it, we have seen much market movement, but what Warren Buffett stocks look set to dominate in this new decade?
Jan. 14, 2020
The ‘Oracle of Omaha’, Warren Buffett, is widely regarded as the greatest investor of all time. His multinational wealth-generating machine, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), has steadily grown over the years, up 11% in 2019, and 53% in the past 5 years.
This might not seem like much, especially compared to the S&P 500’s (NYSEARCA: VOO) 29% gain in 2019, but some of Buffett’s individual investments have provided the greatest opportunities for huge gains. That is why the following three companies are potentially the best Buffett stocks to follow into the new decade.
1. Amazon
Buffett was surprisingly late to the game when it came to Amazon (NASDAQ: AMZN), only announcing Berkshire’s position on the e-commerce giant back in March 2019. Buffett and Co. went on to boost this stake in the following quarter and looks likely to continue adding to this investment in 2020. Amazon was far from the top performer among the Big Tech giants in 2019, experiencing growth of 23% compared to the S&P’s 29%. However, the stock is certainly a long term winner, up nearly 550% over the past five years alone, with plenty of room left to grow.
Despite growth among competitors in e-commerce such as Shopify (NYSE: SHOP) and MercadoLibre (NASDAQ: MELI), Amazon still maintains nearly 40% of the U.S. e-commerce market, while continuing to diversify into other avenues. It’s ‘Prime’ video service has been a thorn in the side of Netflix (NASDAQ: NFLX) for years now, while it also entered the grocery space in 2017 with the purchase of Whole Foods Market for $13.7 billion, which returned an estimated $20 billion in revenue the following year.
However, the jewel in Jeff Bezos’ empires crown is Amazon Web Service, the company’s dominant cloud segment, which has become a cash machine for the company, generating roughly a quarter of the company’s overall 2018 revenue at $25.6 billion. Aside from this, the company is also invested in automated driving, telemedicine, hardware, advertising, and much more. You would be hard-pressed to find a more diversified company in the world, or one with such massive growth potential, which is likely what drew Buffett’s eye.
2. Apple
As one of the world’s biggest brands and the largest holding in Buffett’s portfolio, Apple (NASDAQ: AAPL) was also one of his best stocks, rising more than 86% in 2019 alone, thanks to a late-year rally. However, it also represents one of Buffett’s biggest mistakes, according to some, as the legendary investor actually reduced his holdings in the company early in the year, publicly stating that it was too expensive.
The stock rose more than 30% following Buffett’s decision. After some initial struggles tied to declining iPhone sales, Apple’s fortunes began to branch out to its growing subscription business model, as well as surprising success in the wearables sector. As of November 2019, the Apple Watch dominated the global smartwatch market with 38% market share, while its AirPods have taken the earbud market by storm, with an estimated 50-60 million units sold last year. Despite strong competition from the likes of Google (NASDAQ: GOOGL)(NASDAQ: GOOG) following its purchase of Fitbit (NYSE: FIT) and Microsoft’s (NASDAQ: MSFT) rejuvenated hardware range, Apple still appears to be a consumer favorite.
These changes were highlighted in the company’s Q4 earnings report, where the company brought in higher-than-expected revenue of more than $64 billion, which included $6.5 billion in wearables — an increase of 54% year over year. What followed was strong guidance from the company for the first quarter of 2020, as well as assurances that this was a company capable of adapting to changing markets, and generating recurring revenue through its increasing subscription services.
3. StoneCo
One of the more exciting IPOs from the past two years, Buffett has been an outspoken fan of StoneCo Ltd (NASDAQ: STNE) since it went public back in October 2018. Sure, the Brazillian answer to Square (NYSE: SQ) brought investors on a roller coaster ride in 2019, but it turned out to be a fun one, as the stock climbed 116% by years-end.
The financial technology company reported net income growth of 126% in its last earnings report, as well as a revenue rise of 62%. What really seems to have gotten investors excited however is the jump of its total payment volume by more than 50% year on year.
Berkshire Hathaway holds an 11% stake in StoneCo, as of January 2020, and has witnessed the company’s torrid growth since its IPO, which has left its valuation playing catch up with the real value of the company. With the company closing in on nearly 500,000 merchants on its platform, it has an opportunity to become the dominant payment technology in the much-coveted Latin America space, and Warren Buffett hasn’t let it go unnoticed.
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