Warren Buffett is known for his value approach to investing, and that was on display again in Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) third-quarter trades. It took new positions in Domino’s Pizza and Pool Corp., two solid value plays.
Both of these stocks fit the classic Buffett schema. They’re established brands and leaders in their industries. Although they target different demographic strata, they both play a strong role in the economy and can withstand macroeconomic pressure. But if you’d thought these were the only types of stocks in Berkshire Hathaway’s portfolio, you’d be mistaken. As much as Buffett loves a good value, he has had some growth stocks in the portfolio at times.
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Today, there are at least two stocks in Berkshire Hathaway’s equity portfolio that I would put into the growth box and that are outperforming Berkshire Hathaway and the S&P 500 over the past year. Let’s see what they are, why Buffett might own them, and whether investors should consider buying them, too.
Berkshire Hathaway first took a position in Amazon(NASDAQ: AMZN) in 2019, well after it had already minted millionaires. It’s not clear precisely when he bought it, but it’s up 126% over the past five years, which is around the time he took a position.
At that point in time, no one knew a global pandemic was just months away that would change the world and how companies do business. But what investors did know is that Amazon was, and is, the top e-commerce company in the U.S., and that it had already developed a second business that was top of its industry in cloud computing.
These are two industries that were growing fast then and that Amazon had an edge in, and all of that still applies today. Because it has an intense culture of innovation, it’s likely to keep its position. And today its potential is driven by artificial intelligence (AI).
Buffett doesn’t care much for AI. He doesn’t deny that it could be something wonderful, but he has said he doesn’t know enough about it to evaluate it. His investment in Amazon is about its dominant position in industries that drive the economy.
At its current price, Amazon trades at a P/E ratio of 42, close to its lowest level in years. That still makes it look like a good value play.The growth that comes from AI might entice other investors, though, and having Buffett’s stamp of approval for the company’s other strong businesses should give investors confidence that this is more secure than a strict AI play.
The other clear growth stock in the Berkshire Hathaway portfolio is Nu Holdings(NYSE: NU). Nu is a fintech powerhouse in Latin America that provides banking and other financial services all on a digital app. It’s headquartered in Brazil and also services Mexico and Colombia with a smaller and growing platform.
Nu has demonstrated phenomenal growth since going public in 2021, and Berkshire Hathaway was an early investor, an unusual setup for the company, which is known more for buying full companies or taking positions in public companies. Berkshire Hathaway invested $500 million in a funding round just before the IPO.
At the time, CEO David Velez said, “The new equity financing comes as a result of Nubank’s accelerated and sustainable growth.” The key was that even before going public and reporting positive net income, it was already obvious that its growth was sustainable. It was already the largest all-digital bank in the world with 40 million customers, and today it has 109.7 million and growing.
Since that time, Nu has become sustainably profitable, with positive net income every quarter since the 2022 third quarter. Although it’s not the typical Buffett stock, it’s still a bank stock that plays an important role in the economy where it operates and has a robust credit and banking business. It has tons of cash from deposits that it uses to drive a healthy lending business, and that’s more of a classic Buffett setup.
Both Nu and Amazon are outperforming the S&P 500 and Berkshire Hathaway itself over the past year.
Nu is by far the higher-growth stock, but both of these stocks stand out from the typical Buffett stock because they thrive on innovation and have massive growth runways as opposed to the classic Buffett value stock that has slower, steadier growth. If you’re looking for growth stock candidates, Amazon and Nu are both excellent choices.
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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. Jennifer Saibil has positions in Nu Holdings. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Domino’s Pizza. The Motley Fool recommends Nu Holdings. The Motley Fool has a disclosure policy.
