Since taking the reins at Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) in the mid-1960s, all CEO Warren Buffett has done is crush the benchmark S&P 500 in the return column. Whereas the S&P 500 has gained north of 33,000%, including dividends paid, since Buffett became CEO, Berkshire's Class A shares (BRK.A) have risen by more than 4,900,000%.
Although the "Oracle of Omaha," as Buffett has come to be known, is just as fallible as any other investor, he's demonstrated an uncanny ability to find value hiding in plain sight. It's why so many investors pay close attention to Berkshire's $372 billion investment portfolio and the 45 stocks and two index funds contained within.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
As we march ahead into May, three of these Warren Buffett stocks stand out for all the right reasons and are screaming buys right now (and for the long run).
Visa
The first magnificent Buffett stock that can make patient investors substantially richer is none other than payment processor Visa(NYSE: V). Despite being a stone's throw from a new all-time high, Visa has the tools and competitive advantages necessary to continually outperform Wall Street's benchmark stock indexes.
If you're looking for a chink in Visa's armor, the company being cyclical is about it. When downturns occur in the U.S. and global economy, it's perfectly normal for consumers and businesses to spend less. If less payment volume and fewer transactions occur on Visa's network, there's a good likelihood that its sales and profit growth will slow or shift into reverse. At the moment, the historic decline we're witnessing in U.S. M2 money supply is worrisome for the U.S. economy.
However, the flipside to the above concern is that every recession since the end of World War II has been short-lived. Only three of the one dozen downturns in the U.S. economy reached 12 months in duration, with none surpassing 18 months. Long periods of growth allow Visa to take advantage of higher consumer and enterprise spending.
To add to the above, Visa is purely a payment facilitator and has steered clear of lending. During recessions, lending institutions often have to set aside capital to cover potential credit delinquencies and loan losses. While Visa isn't double dipping like some of its peers and collecting interest income, its advantage is that it doesn't have to set aside money for loan losses. In short, it bounces back from recessions faster than just about any financial stock.
What makes Visa such a phenomenal business is its domestic and international opportunity. In the U.S., Visa is the unquestioned market share leader, as well as the only payment processor to meaningfully gain share following the Great Recession.
Meanwhile, most emerging markets are still largely underbanked. Visa has demonstrated a willingness to buy its way into higher growth regions, as it did when it acquired Visa Europe in 2016. It can also organically push into underbanked markets, which can further fuel its double-digit cross-border volume growth.
Visa's current forward price-to-earnings ratio is below 25, which marks a 15% discount to its forward-earnings multiple over the trailing-five-year period.
Coca-Cola
A second Warren Buffett stock that's begging to be bought in May is consumer staples colossusCoca-Cola (NYSE: KO). Coca-Cola happens to be the stock Berkshire Hathaway has continuously held the longest (since 1988).
Arguably the biggest worry for current and prospective Coca-Cola shareholders is the prevailing rate of domestic and global inflation. If labor and/or input costs for its products are rapidly rising, it has the potential to chip away at the company's operating margin.
On the other hand, Coca-Cola has exceptional branding and phenomenal pricing power. Because it sells a basic necessity good (beverages) that people are going to buy in any economic climate, it can count on predictable operating cash flow and rarely has any trouble passing along higher prices to consumers to offset inflation.
One of Coca-Cola's biggest competitive edges is its geographic diversity. With the exception of three countries (North Korea, Cuba, and Russia), it has operations ongoing everywhere else. It also has more than two-dozen brands generating in excess of $1 billion in annual sales. Wall Street loves certainty, and Coke's presence in developed markets generates predictable and transparent cash flow. Meanwhile, its presence in emerging markets offers decades'-worth of potential needle-moving organic growth.
Additionally, Coca-Cola's marketing prowess is virtually unmatched among consumer goods companies. While Procter & Gamble spends nothing short of a small fortune each year on advertising, Coca-Cola has been the most-chosen brand from retail shelves for a decade running (as of 2022), per Kantar's "Brand Footprint" report. Coca-Cola hasn't been shy about leaning on digital ad channels and utilizing artificial intelligence (AI) to tailor ads to reach younger audiences.
Best of all, Coca-Cola is historically cheap. Shares are currently trading for a shade north of 20 times consensus earnings per share (EPS) in 2025, which is 12% below the average forward-earnings multiple Coke stock has been valued at over the last five years.
Image source: Amazon.
Amazon
The third Warren Buffett stock that stands out as a screaming buy in May (and well beyond) is e-commerce juggernautAmazon(NASDAQ: AMZN). Note, I'm writing this up prior to Amazon reporting its first-quarter operating results on Tuesday, April 30.
What current and prospective Amazon shareholders tend to worry about most is the potential for a U.S. recession. Since Amazon generates a substantial chunk of revenue from its online marketplace, there's the belief that a U.S. recession could heavily weigh on its bottom line -- but this couldn't be further from the truth.
Though most people associate Amazon as an e-commerce retailer, it generates very little of its operating cash flow and income from its low-margin online retail marketplace. The trio of catalysts that turn the proverbial hamster wheel for Amazon are its cloud infrastructure service platform Amazon Web Services (AWS), advertising services, and subscription services.
AWS is the world's leading cloud infrastructure service platform, with an estimated 31% global share, per Canalys, as of the September-ended quarter. Amazon is benefiting from the superior margins AWS provides, as well as the fact that enterprise cloud spending is still in its relatively early innings of expansion. This is a segment that can deliver sustained double-digit growth and should, very soon, surpass $100 billion in annual run-rate revenue.
Advertising services is maintaining double-digit year-over-year growth, too. Amazon lures well over 2 billion users to its site each month, many of which are motivated shoppers or content viewers (e.g., Prime Video). As one of the most-visited sites on the web, Amazon has little trouble commanding strong ad-pricing power from merchants.
The third key segment is subscription services, such as Prime. The last update Wall Street received was that Prime surpassed 200 million global subscribers (per then-CEO Jeff Bezos) in April 2021. With the exclusive rights to Thursday Night Football, an expansive content library, and shipping perks for its e-e-commerce customers (free two-day delivery on most items), this figure has likely risen quite a bit.
Collectively, these ancillary segments are on pace to more than double Amazon's operating cash flow between 2023 and 2027. Shares of the company are currently valued at roughly 13 times forward-year cash flow, which is 41% below its average multiple to cash flow over the trailing-five-year period.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams has positions in Amazon and Visa. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Visa. The Motley Fool has a disclosure policy.
