While it isn't necessarily a great idea to buy a stock just because a billionaire owns it, looking at the top holdings of some of the most successful investors in the world can be a great starting point to finding excellent opportunities.
There are several stocks that are popular among billionaires I wouldn't touch right now. But there are others that look extremely attractive at current levels. Here are two in particular that could be massive long-term winners for patient investors that are worth a closer look right now.
A rock-solid bank with long-tailed potential
It's well known that the largest stock position in Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) portfolio is tech giant Apple (NASDAQ: AAPL). But the second largest stock chosen by Warren Buffett for the conglomerate's massive portfolio could be the better value right now.
I'm talking about Bank of America(NYSE: BAC). Berkshire owns 13.2% of the mega-bank, a stake worth more than $39 billion as of this writing. In fact, during the banking turmoil in mid-2023, Buffett unloaded several bank stocks, but specifically called out Bank of America as one he likes.
Bank of America is a highly profitable business, but it isn't without its headwinds. The bank's cost of capital has risen in the current interest rate environment and its net interest margin has declined by 21 basis points over the past year. And like most banks, Bank of America's net charge-off ratio has increased significantly over the past year.
However, Bank of America is a tremendous institution that could be a big beneficiary once interest rates start to fall. It has the No. 1 retail deposit market share and continues to grow impressively. Unlike several other megabanks, Bank of America's deposit base has grown over the past year, and it added 245,000 net new checking accounts and more than 1 million credit card accounts in the first quarter alone. Its investment banking market share is 115 basis points higher than a year ago. And client balances in the Global Wealth and Investment Management business are at an all-time high of $4 trillion.
In a nutshell, Bank of America is well positioned for when rates start to fall and economic uncertainty starts to subside. Plus, it trades for a lower price-to-book valuation than its peers, despite being a rock-solid institution.
Billionaires love this Magnificent Seven stock
Bill Ackman, head of the Pershing Square hedge fund, is one of the most closely followed billionaires. Like Buffett, most of the stocks he buys are more toward the value end of the spectrum. In fact, there's only one technology stock you'll find in Ackman's portfolio, and it happens to be Pershing Square's single largest investment.
I'm talking about Google's parent company Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). At the end of 2023, Pershing Square owned 13.7 million shares of the tech giant, a stake worth more than $2.3 billion today. And it isn't just Ackman: Alphabet is the most commonly held tech stock among the most notable hedge fund managers, according to our research.
It's not hard to see why Ackman and other billionaires might be a big fan of Alphabet. It's rare to find a highly profitable business that dominates an industry like Google dominates internet search and several other areas, and it's even more rare when the business also has massive growth potential.
If you aren't familiar, in addition to the familiar Google businesses like search, YouTube, Gmail, and others, Alphabet also has Google Cloud, which is the third largest cloud services company in the market and has tons of room to grow. The global cloud computing market is expected to roughly quadruple by 2030, fueled by technologies like AI, Internet of Things, autonomous vehicles, and more, so even if Google Cloud simply maintains its market share, there could be massive potential.
In the first quarter, Alphabet's revenue grew by 15%, led by 28% year-over-year revenue growth from Google Cloud. The business is an absolute cash machine, with a 32% operating margin, and the company is buying back tons of stock and just announced its first-ever quarterly dividend.
The bottom line
To be perfectly clear, it's not a smart idea to buy stocks just because billionaires own them. Even if the billionaire happens to be named Warren Buffett. After all, billionaires may have investment goals and risk tolerance levels that differ greatly from yours.
Having said that, these two billionaire favorites are also excellent businesses with long-tailed growth tailwinds. If you have the patience to hold them for at least the next few years, they could certainly be worth a closer look right now.
Should you invest $1,000 in Bank of America right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet, Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
