When it comes to investing, Warren Buffett’s name carries weight. Over the past six decades, his Berkshire Hathaway has averaged an annual return of nearly 20%, a feat few can match. While Buffett has a knack for outright buying successful companies like GEICO and Dairy Queen, he’s equally skilled at picking winners in the stock market. His team, including Ted Weschler and Todd Combs, has identified stellar investments over the years. Let’s delve into three companies that Buffett and his team have placed their trust in: Amazon, Chevron, and Visa.
Amazon: More Than Just Online Shopping
Berkshire Hathaway holds nearly $2 billion in Amazon stock, a substantial figure but not among its top holdings. However, this behemoth deserves a closer look for anyone building their portfolio.
Amazon is synonymous with online shopping, but it’s so much more. The company is also a leader in cloud computing through Amazon Web Services (AWS), a business segment that generates substantial revenue. AWS powers everything from streaming services to enterprise operations. Additionally, Amazon owns businesses like Whole Foods Market, Audible, and Zappos, diversifying its revenue streams.
Its focus on artificial intelligence (AI) is noteworthy, too. AI innovations can potentially enhance its logistics, advertising, and customer service, pushing the company’s growth further. Financially, Amazon remains strong, with its third-quarter revenue increasing 11% year-over-year and operating income soaring by 55%. Its market value stands at a whopping $2.4 trillion.
Amazon’s price-to-earnings (P/E) ratio of 36 is well below its five-year average of 52, suggesting a relatively attractive valuation for a company with its track record and growth potential.
Chevron: Steady in a Cyclical Industry
Chevron, Berkshire’s fifth-largest holding, represents another strategic investment. With nearly $17.5 billion allocated to this energy giant, Buffett clearly values its long-term potential.
The energy sector is known for its ups and downs, but Chevron has consistently delivered value to its shareholders. With a market capitalization nearing $290 billion, the company plays a vital role in the global energy landscape. While Chevron’s third-quarter results might not have blown anyone away, it still managed to meet expectations and reward shareholders with $7.7 billion in dividends and stock buybacks.
Notably, Chevron has an impressive dividend history. Its dividend yield recently hovered around 4%, making it a reliable choice for income-focused investors. Moreover, the company plans to reduce spending by $2 billion, which could enhance shareholder returns in the future.
Chevron’s forward P/E ratio of 13 is slightly below its five-year average, signaling potential value for investors seeking a stable, dividend-paying stock.
Visa: Dominating the Financial Landscape
Visa is another gem in Berkshire Hathaway’s portfolio, ranked as its 15th-largest holding. It’s a powerhouse in the payment processing industry, boasting a market value of $620 billion.
Visa’s reach is unmatched. Operating in over 200 countries, the company processes 300 billion transactions annually, valued at more than $15 trillion. It’s a dominant player, with about 4.5 billion Visa cards in circulation worldwide. Recent financial results highlight its growth, with fourth-quarter revenue up 12% year-over-year and net income climbing 14%.
Though Visa’s dividend yield of 0.74% might not seem impressive, the company has been increasing its payouts at a steady clip. For instance, its annual dividend per share grew from $1.05 in 2019 to $2.15 recently.
The company’s forward P/E ratio of 28.5 aligns with its five-year average, making it a fairly valued option for investors seeking a stable, growing business. Visa’s relatively low capital requirements also make it an attractive long-term investment.
Balanced Approach to Investing
If Buffett’s track record teaches us anything, it’s that a mix of reliable dividend payers and innovative growth companies can create a robust portfolio.
- Amazon offers diversification and growth through its e-commerce, cloud computing, and AI initiatives.
- Chevron provides stability and income with its consistent dividend payouts.
- Visa combines dominance in its industry with steady revenue growth.
Exploring these companies or considering investments in high-performing ETFs aligned with your risk tolerance might help you align closer to Buffett’s winning strategy.
