2 Warren Buffett Stocks to Buy Hand Over Fist and 1 to Avoid

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Thanks to Warren Buffett’s remarkably successful track record of increasing shareholder value as the leader of Berkshire Hathaway, his investment moves are closely watched by retail investors. But not all of the equities the conglomerate holds in its portfolio are great buys today.

Some of the stocks that Buffett owns are almost no-brainer picks. In my view, two companies he owns should be added to your portfolio right now. There is one Buffett stock, however, that you should avoid if you’re looking for investments that can outperform the S&P 500 over the long term.

2 Buffett stocks to buy: Visa and Mastercard

Investors can buy Visa (NYSE: V) and Mastercard (NYSE: MA) without hesitation. Combined, they make up less than 1% of Berkshire’s portfolio, but they have been massive winners historically. In the past decade, Visa shares are up 410% and Mastercard shares are up 535%.

Critics might knock these businesses because they experience slight cyclicality, given that consumer spending is tied to the state of the economy. Because these companies earn fees when cards are used as a method of payment, consumer spending patterns can impact the amount of revenue they generate.

But to their benefit, neither Visa nor Mastercard lends any money to borrowers. They simply provide the communications infrastructure that connects banks, consumers, and merchants.

And this has been a truly exceptional business model. Both companies operate massive two-sided payments platforms that bring together consumers and merchants across the world, leading to powerful network effects. Operating asset-light businesses means Visa and Mastercard consistently post operating margins in excess of 50%.

Their price-to-earnings (P/E) ratios might not scream value. Visa trades at a P/E of 32.8, while Mastercard’s is 40.8. Those are not, at first glance, cheap valuations.

However, an easy argument can be made that they deserve those premium valuations thanks to the qualities I just mentioned. With digital payments and cashless transactions still experiencing strong growth, Visa and Mastercard are set to continue their incredible financial performances.

1 Buffett stock to avoid: Coca-Cola

One Warren Buffett business that investors should avoid is Coca-Cola (NYSE: KO). This assertion may surprise you, especially considering that the beverage giant is Berkshire Hathaway’s fourth-largest stock holding, with a position valued at $24 billion. But there are valid reasons to expect Coca-Cola won’t perform well in the decade ahead.

One factor to consider is growth. The business reported sales of $46 billion in 2023. That was lower than its total in 2013. This is a mature enterprise that is already in more than 200 countries. There isn’t a lot of potential for it to expand faster than population growth.

The stock isn’t cheap, either. Shares trade at a P/E multiple of 24.4. That’s significantly more expensive than they were just a few months ago, and it seems unwarranted considering Coca-Cola’s revenue trends.

To its credit, though, Coca-Cola is an extremely safe, reliable, and stable business to own. Its powerful global brand provides it with an economic moat. And the company generated a superb 21% operating margin in Q4. This impressive profitability affords management the ability to pay a dividend that, at the current share price, yields 3.2%.

However, the stock’s total return has significantly lagged the S&P 500’s total return in the past 10 years. Given its low growth prospects and above-market P/E ratio, I don’t have much confidence that its shares can outperform the broader market. This makes it a Buffett stock to avoid.

Should you invest $1,000 in Coca-Cola right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

2 Warren Buffett Stocks to Buy Hand Over Fist and 1 to Avoid was originally published by The Motley Fool