For nearly six decades, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett has been putting on a clinic for Wall Street and everyday investors. Since taking the reins at Berkshire Hathaway in the mid-1960s, he’s overseen an aggregate return of 4,384,747% in his company’s Class A shares (BRK.A) as of the end of 2023. On an annualized basis, he’s practically doubled the total return of the benchmark S&P 500 since becoming CEO.
Riding the Oracle of Omaha’s coattails is a strategy that’s made patient investors significantly richer over the years. The struggle is simply deciding which of Berkshire’s approximately 50 different securities to buy.
As we open the curtain on a new year, four Warren Buffett stocks stand out as screaming buys.
Mastercard
The first phenomenal buy you’ll find in the $368 billion portfolio Buffett oversees at Berkshire Hathaway is none other than payment processor Mastercard (NYSE: MA).
The single biggest headwind for a cyclical juggernaut like Mastercard is the health of the U.S. and global economy. If a recession were to take shape, consumer and enterprise spending would be expected to decline. That’s not particularly good news for a company that relies on growth in aggregate transactions and total payment volume.
However, perspective changes everything. Even though recessions are a normal part of the economic cycle, they’re typically short-lived. While no recession following World War II has surpassed 18 months, the majority of expansions have endured multiple years, with two lasting a full decade. Cyclical companies like Mastercard spend very little time navigating choppy waters.
Mastercard’s success is also a function of its lending avoidance. Though the company would likely be successful as a lender, entering the lending market would potentially expose it to loan losses during recessions. With management sticking to high-margin and predictable payment processing, Mastercard hasn’t been hamstrung by economic downturns.
Finally, consider the opportunity that lies ahead for Mastercard. Most emerging market regions remain underbanked (e.g., Southeastern Asia, Africa, and the Middle East), while cashless transaction adoption continues to grow in developed countries. Expect Mastercard stock to climb to a fresh all-time high in 2024.
Sirius XM Holdings
A second Warren Buffett stock that makes for a screaming buy in the new year is satellite-radio operator Sirius XM Holdings (NASDAQ: SIRI). Shares of Sirius XM were recently re-added to Berkshire Hathaway’s portfolio following a roughly two-year absence.
One of the clearest advantages Sirius XM brings to the table is its legal monopoly status. Although it faces competition for listeners from terrestrial and online radio operators, there isn’t another licensed satellite-radio operator. This affords the company exceptional subscription-pricing power.
Another reason patient investors can trust Sirius XM to deliver is its revenue diversity. Most radio operators are heavily reliant on advertising for the lion’s share of their sales. The problem with advertising is that its highly cyclical. The slightest hint of trouble is often enough to convince companies to pare back their ad spending.
Through the first nine months of 2023, Sirius XM generated just 19% of its $6.67 billion in total sales from advertising, most of which originated from Pandora, which it acquired in 2019. Meanwhile, 77% of its revenue derived from subscriptions. During recessions, subscribers are far less likely to cancel than advertisers are to reduce their spending. Thus, Sirius XM is far better prepared to navigate a downturn than its peers.
Furthermore, some of the company’s costs remain relatively fixed. While talent acquisition and royalty expenses are going to vary from quarter to quarter, transmission and equipment expenses don’t change much, if at all. As Sirius XM adds new subscribers, its operating margin can steadily expand.
Paramount Global
Media juggernaut Paramount Global (NASDAQ: PARA) is the third Warren Buffett stock that looks like an amazing buy for 2024.
Last year was something of a double whammy for Paramount. Rapidly rising interest rates were a clear concern for investors given Paramount’s debt-heavy balance sheet. Meanwhile, advertising revenue took a dive, with many businesses anticipating a recession. Advertising accounted for nearly 40% of Paramount’s legacy TV media division sales through the first nine months of 2023.
Thankfully, the new year brings new opportunities. Specifically, 2024 is an election year. According to advertising company GroupM, U.S. political advertising is expected to grow to nearly $16 billion in the new year. This would represent an increase of 31% from the 2020 election cycle, and it’s the perfect spark for ad-driven businesses.
Investors should also be excited about the future growth potential of Paramount’s streaming segment. Even following price hikes for Paramount+ and ad-supported tier subscriptions in June, the subscriber base for Paramount+ has continued to expand. When coupled with mindful cost-reduction efforts, Paramount’s direct-to-consumer segment should deliver notably smaller losses in 2024.
Don’t forget about Pluto TV, either. Pluto TV is the nation’s leading free, ad-supported streaming service. If the U.S. economy were to dip into a recession, people could look to cut their monthly expenses by choosing a free, ad-driven service like Pluto TV.
Paramount’s track record of profitability makes its latest swoon a buying opportunity for value seekers.
Amazon
The fourth and final Warren Buffett stock that makes for a screaming buy in 2024 is the leading e-commerce company, Amazon (NASDAQ: AMZN).
Most people are familiar with Amazon because of its online marketplace. Insider Intelligence estimated that Amazon would rake in nearly $0.40 of every $1 spent in U.S. online retail sales in 2022. But while a majority of the company’s sales originate from its online marketplace, very little of its operating cash flow or profit come from e-commerce.
Three ancillary segments are the secret sauce that make Amazon tick. Leading the charge is Amazon Web Services (AWS), the world’s top cloud infrastructure service provider. Enterprise cloud spending is still early in its ramp-up, which should allow AWS to enjoy sustained double-digit increases in year-over-year sales. AWS is regularly responsible for 50% to 100% of Amazon’s operating income despite accounting for just one-sixth of the company’s net sales.
Advertising services is the second key division that continues to thrive. Amazon attracts more than 2 billion users to its site on a monthly basis, which makes it a logical go-to for merchants wanting to get their product(s) or message(s) in front of motivated shoppers. Even amid a challenging climate for advertisers, Amazon hasn’t had any trouble sustaining double-digit sales growth.
The third segment of importance for Amazon is subscription services. According to founder and former CEO Jeff Bezos, Amazon surpassed 200 million global Prime subscribers in April 2021. It’s likely added even more Prime subscribers since becoming the exclusive home for Thursday Night Football.
Although Amazon wouldn’t be considered inexpensive by traditional fundamental metrics, such as the price-to-earnings ratio, it’s cheaper than it’s ever been relative to its forward-year cash flow. This makes it a stellar buy as we push forward into a new year.
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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. Sean Williams has positions in Amazon, Mastercard, and Sirius XM. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and Mastercard. 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.
4 Warren Buffett Stocks That Are Screaming Buys in 2024 was originally published by The Motley Fool
Source: finance.yahoo.com