Known as the Oracle of Omaha, Warren Buffett is one of the most famous investors of all time. His long track record has created a huge following, so it's not surprising that investors pay close attention to which stocks he owns through Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B), the conglomerate and investment vehicle he oversees.
Let's look at two of his holdings that appear to be no-brainer buys over the long run. This includes one of his well-known positions as well as a smaller under-the-radar stock that Berkshire owns.
1. American Express
A quick scan of Berkshire Hathaway's portfolio reveals that Buffett is a big fan of financial stocks involved in the credit card industry. He has investments in credit card processing network companies Visa and Mastercard, as well as credit card issuers such as Capital One, Citigroup, and Bank of America.
The stock that combines both these business models, however, is American Express(NYSE: AXP), which owns its own credit card processing network as well as issues its own cards. The stock is Berkshire's third-largest holding.
The company is known to attract a more wealthy clientele, given its use of lucrative awards, which allows it to charge both its cardholders and merchants higher fees. The company does particularly well in the area of travel and entertainment spending, which accounts for more than a quarter of its billings.
Currently, American Express is in the process of ramping up its marketing spending to attract new customers. It said it would spend about $6 billion this year in marketing, which is an increase of $800 million, or 15%, compared to last year. These marketing investments will come from its core earnings, and the company said it uses a high bar to make sure the acquisition of new cardholders is profitable. It did note that its second-half investments, however, will lead to growth in 2025 and beyond and not immediately. American Express management also believes that it will be able to keep its marketing investments at a high level next year as well.
Image source: Getty Images
In addition to increased marketing spending, American Express also has an opportunity to increase its annual card fees. The company increased the fee for its small business Gold Card earlier this year from $295 to $375 and the company could be poised to increase fees on its consumer Gold Cards, with an upcoming refresh set to be announced soon.
Buffett is a big fan of compound growth stocks, and American Express is a great example of a company that can continually grow its revenue and earnings over time. And while the company is not recession-proof, its wealthier customer base does tend to be pretty resilient.
Trading at a forward price-to-earnings (P/E) ratio of about 16 times based on 2025 analyst estimates, the stock looks reasonably priced for a company that continues to be a solid, steady grower, making it an attractive long-term investment.
AXP PE Ratio (Forward 1y) data by YCharts
2. Floor & Decor
One of Berkshire's smaller holdings, Floor & Decor(NYSE: FND), is perhaps one of the best long-term investment opportunities in the retail space. The company's stores are huge, with about 80,000 square feet of selling space. That's nearly four times the selling space of large dedicated flooring specialty stores and substantially bigger than the 3,000 to 5,000 square feet dedicated to hard-surface flooring at a big-box home improvement retailer such as Home Depot and Lowe's.
This helped Floor & Decor to become a leader in the hard-surface flooring space, as it offers a much wider selection of tile, hardwood, LVT (luxury vinyl tile), and other flooring. A combination of direct sourcing and increasing scale, meanwhile, gives it strong buying power in a very fragmented space, which also allows it to offer its customers some of the best pricing in the industry.
With only 225 warehouse stores across 36 states at the end of March, expansion is the biggest growth opportunity for the company moving forward. The retailer is looking to add between 30 to 35 stores this year. It says it plans to open 500 stores in the U.S., although that number could ultimately prove to be small, given how many stores companies like Home Deport (2,005 at the end of Q1) and Lowe's (1,746 stores at the end of Q1) have in the U.S.
The stock has struggled this year in the wake of a difficult home improvement market that has been impacted by a slow housing market and higher interest rates. Any recovery in the home improvement market would help the stock, and the Joint Center for Housing Studies of Harvard University sees the home improvement market starting to trend up through the middle of 2025.
FND PE Ratio (Forward 1y) data by YCharts
The stock currently trades at a 36 times forward P/E based on 2025 earnings estimates, which looks attractive, given the long runway for expansion the company has in front it. Early expansion stories at reasonable valuations often make some of the best long-term investments in the retail sector, and Floor & Decor has shown it can be a winner in the home improvement retail sector.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Home Depot, Mastercard, and Visa. The Motley Fool recommends Lowe's Companies and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
