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Stoneco Ltd Cl A(STNE-Q)

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2 Warren Buffett Stocks Down 17% and 90% to Buy in November

Motley Fool - Thu Nov 2, 2023

Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett stands as one of history's most successful investors and has delivered incredible performance for shareholders who have backed his company. To put things in perspective, Buffett purchased a controlling stake in Berkshire and became the business's leader in 1965. If you had invested $1,000 in the company when Buffett took over and held on to your stake, it would now be worth approximately $29 million.

Because Berkshire already ranks as the world's eighth-largest company and has a market capitalization of more than $735 billion, investors shouldn't count on that performance being repeated. But Buffett has continued to beat the market over the last year, and it's easy to see why he remains a go-to source for investing wisdom and strategies.

If you're looking for Buffett-backed stocks that have what it takes to strengthen your own portfolio, read on to see why buying these discounted stocks looks like a smart move right now.

The Oracle of Omaha has loved Coca-Cola stock for a long time

Parkev Tatevosian:Coca-Cola's (NYSE: KO) stock price is down 17% off its highs in recent years, and it's one Warren Buffett stock I think makes an excellent buy for November. Before you claim that a 17% discount is not a big deal, I will highlight that Coca-Cola stock, save for a moment in the aftermath of the pandemic, has rarely been down to this magnitude. Furthermore, people prefer spending more on away-from-home activities, where Coca-Cola has a more significant market share.

The near-term tailwind from consumers unleashing pent-up demand could propel Coca-Cola to ever-increasing profitability. Indeed, in the previous decade, Coca-Cola's operating income increased from $11.1 billion to $12.1 billion. That's despite revenue decreasing from $46.8 billion to $43 billion in that time. Falling revenue can be somewhat overstated, as Coca-Cola has divested some businesses over the years to focus on the core brands and growth in healthier options like zero-calorie drinks.

KO PE Ratio (Forward 1y) Chart

KO PE Ratio (Forward 1y) data by YCharts

Arguably, the No. 1 reason to invest in this beverage giant is its decades of experience creating, distributing, and selling tasty beverages people have come to love. Each of these three factors is difficult in itself, but Coca-Cola has figured out how to do them all masterfully.

Finally, the sell-off has Coca-Cola stock trading at a fair valuation at a forward price-to-earnings of 20. Of course, the Oracle of Omaha knows a good company when he sees it, and it's no surprise that Coca-Cola stock has been one of his top holdings for years.

This little-known financial-tech stock could soar

Keith Noonan: StoneCo (NASDAQ: STNE) stands out as one of the more unusual stocks in Berkshire Hathaway's portfolio. Granted, the Oracle of Omaha's company only holds a small stake in the Brazilian fintech services provider, but I believe the company is one of the most intriguing growth plays in the Berkshire portfolio.

What makes StoneCo an atypical Buffett stock? For starters, Buffett famously prefers to invest in U.S.-based companies. The U.S. has had the world's strongest and most dependable economy for decades, and the Oracle of Omaha has said that it's never a good idea to bet against America. But Berkshire clearly sees some promise in Latin America as well -- and Brazil in particular.

With more than 216 million people, Brazil ranks as the world's seventh-largest country by population. While adoption of e-commerce and card- and app-based payments has been proceeding at a brisk pace in recent years, these trends are still at very early stages of unfolding compared to the U.S., China, and Europe. StoneCo's core business revolves around providing card-and app-based payment processing services for retail locations and e-commerce sites.

Unlike most major Berkshire Hathaway stakeholdings, StoneCo is also still a relatively small company. With a market capitalization of roughly $3 billion, it's one of the smallest companies that Buffett's conglomerate owns a stake in. Admittedly, its market capitalization used to be much higher.

Due to the collapse of the company's lending unit for small and medium-sized businesses, macroeconomic pressures that have crushed fintech valuations, and other pressures, StoneCo stock is down roughly 90% from its high. On the other hand, the business is actually growing at an encouraging clip -- with sales up roughly 28% year over year in the second quarter and non-GAAP (adjusted) net income shooting up 477% compared to the prior-year period. StoneCo also has a net cash position of roughly 4.3 billion Brazilian reals -- or roughly $850 million.

STNE PE Ratio (Forward) Chart

STNE PE Ratio (Forward) data by YCharts

While StoneCo comes with some extra risk due to macroeconomic uncertainty associated with operating in Brazil, the stock looks downright cheap trading at just 12 times this year's expected earnings. If you're on the hunt for Buffett-backed stocks that are capable of delivering multibagger returns in the next five years, I think StoneCo has what it takes to be a winner.

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Keith Noonan has positions in StoneCo. Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and StoneCo. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

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