For the better part of the last six decades, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been lapping Wall Street’s broadest-based index, the S&P 500. Whereas the S&P 500 has delivered an aggregate return, including dividends, of around 38,000% since the mid-1960s, the aptly named “Oracle of Omaha” has overseen a 5,544,952% cumulative return in his company’s Class A shares (BRK.A), as of the closing bell on Sept. 27.
Warren Buffett is generally an open book and has been more than willing to share the traits and characteristics he looks for when investing in so-called “wonderful companies.” For example, he tends to focus on profitable, time-tested businesses with sustained competitive advantages and rock-solid management teams.
Additionally, a majority of the 43 stocks found in Berkshire’s roughly $315 billion investment portfolio pays a dividend.
But no two Buffett stocks are created equally. As we enter the fourth quarter of 2024, two unstoppable stocks in Berkshire’s $315 billion portfolio stand out as screaming buys — and are likely to remain so for the foreseeable future.
Sirius XM Holdings
The first magnificent Buffett stock that makes for a no-brainer buy in the fourth quarter (and beyond) is satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI).
Sirius XM may have represented an intriguing arbitrage opportunity for the Oracle of Omaha and his investment team.
In December 2023, Sirius XM unveiled plans to merge with Liberty Media’s Sirius XM tracking stock, Liberty Sirius XM Group. Liberty Media had been Sirius XM’s largest shareholder by a mile, and its various tracking stock classes (Berkshire Hathaway held shares in two of these three classes) were often valued at head-scratching discounts to the share price of Sirius XM.
Merging into a single class of shares, which occurred after the closing bell on Sept. 9, and effecting a 1-for-10 reverse stock split to make shares more attractive to institutional investors, may be the lure that Buffett and his investing lieutenants, Todd Combs and Ted Weschler, found enticing.
But there’s much more to appreciate about Sirius XM Holdings than just its simplified share structure and the prospect of institutional investors finding it more attractive following its unique split.
For instance, it’s the only licensed satellite-radio operator. Although this doesn’t mean it’s free of competition, being a legal monopoly does afford the company strong subscription pricing power. With Spotify Technology recently raising its subscription cost, Sirius XM has a golden opportunity to follow suit in the near future and boost its sales.
Unlike traditional radio operators, Sirius XM also has a somewhat transparent and predictable cost structure. While royalties and talent acquisition expenses are going to deviate from one quarter to the next, transmission and equipment costs generally don’t. If Sirius XM can grow its subscriber count over time, some of its expenses should remain level and provide an opportunity for margin expansion.
However, the biggest competitive edge Sirius XM brings to the table is its revenue diversity. Advertising accounts for the bulk of the revenue generated by terrestrial and online radio providers. For Sirius XM, ad revenue via Pandora, which it acquired in February 2019, makes up less than 20% of its net sales.
Lengthy economic expansions tend to help ad-driven businesses. But when recessions do occur, ad-based radio providers struggle mightily. Since Sirius XM brings in about 77% of its net sales from subscriptions, its operating cash flow is far more predictable and less susceptible to wild swings during economic downturns.
What makes Sirius XM such a screaming buy is its valuation. The company’s forward price-to-earnings (P/E) ratio of 7.5 is more or less an all-time low since the company went public 30 years ago. Tack on a 4.4% annual yield and you have a standout bargain!
Visa
The second unstoppable Warren Buffett stock that makes for a screaming buy for the remainder of 2024 (and beyond) is payment processor Visa (NYSE: V).
Visa found itself in the headlines for all the wrong reasons last week. The leading domestic payment facilitator will reportedly be sued by the U.S. Justice Department for violating antitrust law concerning its dominance in the debit card market. Although Visa has denied any wrongdoing, legal issues may weigh on sentiment in the near term.
Something else this potential DOJ antitrust suit has done is create a price dislocation that investors shouldn’t pass up.
Although the DOJ’s focus is on Visa’s debit card operations, Visa is also a juggernaut when it comes to processing credit transactions. Based on data from eMarketer, Visa accounted for $6.45 trillion in credit card network purchase volume domestically in 2023, which is more than double the $2.73 trillion that Mastercard handled. Being the go-to payment processor in the world’s No. 1 market for consumption isn’t a bad thing.
But there’s also a huge opportunity for Visa beyond domestic borders. It’s consistently reported double-digit growth in cross-border payment volume, which is reflective of most fast-paced emerging markets being chronically underbanked. Visa has deep enough pockets and strong enough cash flow to organically enter these markets, and will occasionally lean on acquisitions as a means to expand its reach (e.g., the purchase of Visa Europe in 2016).
Although it’s a subtle difference to some of its peers, Visa has avoided becoming a lender. Being able to double dip and generate fees from merchants and interest income/fees from cardholders has propelled American Express higher for decades. But lending also exposes AmEx and its peers to credit delinquencies and loan losses during economic downturns. Since Visa isn’t a lender, it’s not required to set capital aside to cover loan losses, which is a subtle but significant competitive advantage.
Time is also very much on Visa’s side. It’s a highly cyclical company that benefits from an increase in consumer and enterprise spending during lengthy periods of economic expansion. Though recessions are a perfectly normal and inevitable part of the economic cycle, they’re historically short-lived. Patience has paid off handsomely for Visa’s shareholders since it went public in March 2008.
The final puzzle piece that makes Visa a screaming buy is, naturally, its historically cheap valuation. Shares can be purchased right now for less than 25 times forward-year earnings per share, which represents a 13% discount to its average forward P/E over the trailing-five-year period.
Further, with the exception of the brief COVID-19 crash in February-March 2020, Visa hasn’t been cheaper over the last half-decade. This is what makes this market-leading Buffett stock a clear-cut buy.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Mastercard, Sirius XM, and Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, Spotify Technology, and Visa. The Motley Fool has a disclosure policy.
2 Unstoppable Warren Buffett Stocks That Are Screaming Buys for the Remainder of 2024 (and Beyond) was originally published by The Motley Fool
