Do you have $1,000? 2 Best Warren Buffett Stocks to Buy Long-Term

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This year has been difficult for investors, with the S&P500 and the Nasdaq Compound the indices are sliding towards bear markets. Persistent inflation and rising interest rates took center stage, dragging down almost all asset classes.

A bear market can be a scary time for investors. No one likes to see their wallet drop. However, at times like this, it helps to think like Berkshire Hathaway (BRK.A 0.35%) (BRK.B 0.67%) CEO Warren Buffett.

Buffett achieved his (and Berkshire’s) decades of success by thinking long-term and owning companies (or shares in companies) for years, even decades. you’d do well to follow his investing techniques and focus on quality companies, building your positions slowly rather than trying to time a market bottom. Bear markets provide opportunities to buy stocks at a discount, and two Buffett stocks you could invest $1,000 in today that are trading at a discount are Visa (V -0.28%) and Allied Financial (ALLY 0.77%). Let’s see why these two Buffett stocks are great long-term investment options.

1.Visa

Visa helps people in over 200 countries transfer their money using debit cards, credit cards and other payment products. Nearly 49% of American adults had a Visa card in 2020, while about 39% have a MasterCard and 15% have a American Express. This gives Visa a considerable lead in the payment processing space: in 2020, the company processed a total volume of $11.4 billion, surpassing Mastercard and American Express, which processed $6.3 billion respectively. and $1 billion.

The payment company has a huge lead over the competition due to its widely accepted cards. Not only that, but Visa continues to innovate and expand its offerings to stay ahead of the competition.

Its business model is relatively asset-light, which means that the company does not need to invest much of its capital in assets. As a result, Visa has very high profit margins, averaging 44% over the past decade. It’s also a money-making machine, generating more than $16 billion in free cash flow in the past year. The company can use this money to make acquisitions, pay dividends or buy back its shares.

Data by YCharts.

Visa stock performed well, and in the first nine months of its fiscal year, its net income rose 22.6% and its net income rose 26%. The company continues to operate despite high levels of inflation, which CEO Al Kelly said, “net-net, historically, inflation has been positive for us.” Since the company earns commissions as a percentage of payment volume, rising costs of goods and services increase transaction sizes, which helps Visa reap more revenue.

Visa’s long-term prospects look bright. According to a study by BlueWeave Consulting, the global digital payment market will grow by 12% per year until 2028. However, it faces increasing competition from PayPal Credits and major banks for their money transfer service, Zelle.

To protect its top spot, Visa has acquired fintech partners that enhance its existing business. It sought to enter the open banking space by buying Plaid for $5.3 billion in 2020. However, regulators rejected the deal and Visa instead acquired Tink for $2.1 billion, a banking network opened in Europe.

Open banking could be the future of finance. According to Allied Market Research, the open banking market enables non-bank businesses to create financial products and is expected to grow 22% per year through 2032. By acquiring Tink and staying ahead of the competition, Visa is in excellent position to continue to provide for its investors.

2. Allied Financial

Ally Financial is an all-digital consumer bank specializing in auto loans. Warren Buffett increased Berkshire’s stake in the bank in the second quarter by buying 21 million shares. Berkshire’s $1 billion stake gives Buffett and Berkshire more than 9% stake in the bank. Ally Financial is trading at a low valuation, and its tangible price-to-book ratio of just 0.93 is likely one of the reasons Buffett increased Berkshire’s stake.

The bank has taken advantage of used car shortages over the past two years, which has increased the cost of used vehicles. In the second quarter, the bank issued $13.3 billion in auto loans, its highest quarter since 2006.

Smiling people are together in a car.

Image source: Getty Images.

Ally also benefited from higher interest rates. The Federal Reserve has raised its federal funds rate from nearly 0% to 2.5% since March, pushing up funding costs for all loans. Ally’s net interest margin, the difference between the interest it earns on its loans and the interest it pays on its deposits, has improved from 3.55% last year to over 4% in the second quarter.

Ally Bank has benefited from being one of the first all-digital banks, growing its depositary customers by 20% annually since its inception in 2009. According to Allied Market Research, the digital banking market is expected to grow by 13 .6% per year through 2027. Ally believes its goal-oriented culture will help it continue to grow in the digital banking space. This, coupled with the bank’s growing suite of products like Ally Invest, its brokerage product, and Ally Lending, should provide it with multiple avenues for growth in the coming years.

Another thing to love about Ally is the amount of money it returns to its shareholders. This year, the bank spent $1.2 billion to buy back its shares and paid another $259 million in dividends. Ally shares are trading below book value, giving the stock a good margin of safety, and its 3.56% dividend yield makes it a solid investment for those looking for passive income.

Ally is an advertising partner of The Ascent, a Motley Fool Company. American Express is an advertising partner of The Ascent, a Motley Fool Company. Courtney Carlsen has no position in the stocks mentioned. The Motley Fool has positions and recommends Berkshire Hathaway (B shares), Mastercard, PayPal Holdings and Visa. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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