Once again, Warren Buffett’s holding company, Berkshire Hathaway, is outperforming the market in 2024. With a portfolio comprising approximately 50 stocks and ownership of several complete companies, Berkshire Hathaway serves as a prime source of inspiration for investors seeking to surpass market returns. Following Buffett’s investment choices and absorbing his invaluable insights can provide investors with fruitful ideas.
For individuals with $300 available for investment after settling debts and securing an emergency fund, three outstanding Buffett-endorsed stocks to consider purchasing are Visa (NYSE: V), Nu Holdings (NYSE: NU), and Floor & Decor (NYSE: FND).
1. Visa: Limited competition for its credit card network
Visa has secured a formidable position in the credit card processing realm, boasting a long-term competitive advantage—a feature highly favored by Warren Buffett. As the largest credit card processing network globally, Visa facilitates over $15 trillion in trailing 12-month transaction volume and boasts a staggering 4.3 billion cards in circulation worldwide.
Crucially, Visa maintains its edge by perpetually innovating. While it currently enjoys a wide economic moat, it remains vigilant against potential competitors, continuously advancing under the leadership of Chief Executive Officer Ryan McInerney, a seasoned Visa veteran. The company’s strategy revolves around nurturing robust partnerships with financial institutions and leveraging cutting-edge technology to sustain its market dominance.
With its significant footprint in the global economy, Visa’s growth trajectory mirrors that of the overall economic landscape, positioning it as a top-tier “forever stock.” Its performance is intricately linked to economic prosperity—whenever consumers spend, Visa thrives, earning a fraction of every card transaction. Despite prevailing economic volatility, Visa has exhibited robust growth, buoyed by the post-pandemic recovery, evident in rising cross-border transaction volumes.
In the fiscal first quarter of 2024 (ending Dec. 31), Visa posted impressive results, with total revenue surging 9% year over year to $8.6 billion, while earnings per share (EPS) soared by 20% to $2.39. Notably, Visa boasts remarkable profit margins, reaching an unmatched 57% in the first quarter, signifying its ability to convert over half of its revenue into profit. Furthermore, Visa consistently enhances shareholder value by steadily increasing its dividend payout.
Having historically outperformed the market, Visa is poised to continue rewarding investors handsomely.
2. Nu Holdings
Nu Holdings, a digital bank, stands out as one of the few growth stocks within Berkshire Hathaway’s predominantly value-oriented portfolio. Possessing quintessential Buffett-stock traits—a financial institution with substantial cash reserves—Nu Holdings exhibits robust growth and market expansion, particularly in its native Brazil and newer markets like Mexico and Colombia.
In the fourth quarter of 2023, Nu Holdings witnessed a remarkable 57% year-over-year revenue surge, accompanied by the addition of 4.8 million new accounts, bringing the total to 94 million. Beyond driving revenue growth, Nu employs a strategic approach of upselling and cross-selling, transforming lower-paying customers into highly engaged users who demonstrate increased spending and platform interaction. This is evidenced by the sequential rise in average revenue per active customer (ARPAC), climbing from $8.20 to $10.60 in the fourth quarter of the current year.
Furthermore, this customer-centric approach contributes to Nu’s sustained profitability. Although not profitable by generally accepted accounting principles (GAAP) at the time of its 2021 IPO, Nu has since reported six consecutive quarters of net income, surging from $58 million in the fourth quarter of 2022 to $361 million in the comparable period of the following year.
Nu’s robust credit risk management further fortifies its resilience amid regional economic challenges. Despite Brazil’s volatile economic landscape, characterized by elevated inflation and interest rates exceeding 10%, Nu witnessed a 38% year-over-year increase in deposits to $23.7 billion in the fourth quarter, while its interest-earning portfolio surged by 91% to $8.2 billion.
Positioned as a premier growth stock, Nu Holdings is poised to continue outperforming the market in the foreseeable future.
3. Floor & Decor
Buffett’s interest in Floor & Decor underscores the appeal of simple yet potent business models. Despite being a relatively small warehouse-style chain specializing in flooring products, Floor & Decor’s compelling growth trajectory has captured attention. Its rapid expansion strategy, focusing on opening new stores, presents substantial long-term potential.
Before the onset of inflation in 2022, Floor & Decor showcased robust comparable sales (comps) growth, indicating a viable concept poised for sustained expansion. While recent growth has moderated, the company’s expansion efforts remain robust, signaling optimism among savvy investors.
In 2023, Floor & Decor reported a 3.5% increase in sales for the full year, although comps declined by 7.1%. Operating margin dipped to 7.3%, down 2 percentage points from the previous year, while earnings per share (EPS) fell by 18% to $2.28. Management projects a sales uptick of approximately 6.4% in 2024, with comps expected to decline by about 3.5%, alongside an EPS estimate of around $1.95. Despite these challenges, the company’s fourth-quarter EPS of $0.34 surpassed Wall Street’s expectations.
With plans to open 30 to 35 new stores this year, Floor & Decor aims to capitalize on its growth potential, aiming for a store count of 500 within the next eight years. These new store openings offer avenues for revenue growth amid pressures on comps. While challenges such as inflation and cyclical factors impact the home improvement industry, Floor & Decor’s efficient operational model and expansive growth outlook position it favorably for long-term gains.
