Few investors are more revered on Wall Street than the aptly named “Oracle of Omaha.” Since Warren Buffett became CEO of Wall Street, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) In the mid-1960s, he oversaw an aggregate return of more than 5,700,000% on his company's Class A shares (BRK.A) and guided Berkshire to Become the ninth public company to reach the $1 trillion market cap plateau..
When you outperform Wall Street's major stock indexes by as much as Buffett has over nearly six decades, you're going to attract a large audience. Investors often wait with bated breath to find out what stocks he and his investment team have been buying and selling.
Buffett and his top aides currently oversee a portfolio of 45 stocks worth $318 billion. However, the outlook for these investments differs significantly.
As we head into September, three sensational Warren Buffett stocks stand out for all the right reasons and make for safe buys.
Amazon
The first notable Buffett stock that long-term investors can confidently add to their portfolio in September is Leader in e-commerce Amazon (NASDAQ: AMZN).
The main criticism you'll find about Amazon is that it's cyclical. Most people know the company because it's a global leader in the e-commerce segment. If the U.S. or global economy weakens and online retail sales growth slows or reverses, there's a perception that Amazon will struggle.
However, Amazon is much more than e-commerce. Although online retail sales generate a lot of revenue, the extremely thin margins associated with e-commerce are responsible for very little in terms of operating cash flow and net profits. Rather, the lifeblood of Amazon’s cash flow can be traced to its three high-growth ancillary operating segments.
Amazon’s backbone is its cloud infrastructure services platform, Amazon Web Services (AWS). According to estimates from technology analytics firm Canalys, AWS accounted for one-third of global spending on cloud infrastructure services in the quarter ended in June. Over the remainder of this decade, businesses are expected to shift more of their spending toward cloud services, which alone should drive double-digit growth potential for AWS.
The second fast-growing operating segment that has been a goldmine for Amazon is advertising services. The ability to attract more than 3 billion visitors to its website each month is an insatiable draw for companies looking to get their message across to consumers. Whether it’s Amazon’s growing library of content or its online marketplace, it has no problem commanding top-tier advertising prices.
The third piece of the puzzle is subscription services, such as Prime. In April 2021, former Amazon CEO and founder Jeff Bezos claimed that Prime had surpassed 200 million global subscribers. With the company securing an 11-year streaming deal with the National Basketball Association (NBA) and becoming the exclusive streaming partner for Thursday Night FootballPrime also has exceptional pricing power.
Amazon stock can be purchased right now for less than 12 times its projected 2025 cash flow, which amounts to a 47% discount to its average forward-year cash flow multiple over the previous five-year period.
MasterCard
A second phenomenal Warren Buffett stock that becomes a sure buy in September is the global payment processing giant. MasterCard (NYSE:MA).
As with Amazon, the main concern for current and future Mastercard shareholders is often cyclical. When the U.S. or global economy weakens, it's quite natural for consumers and businesses to cut back on discretionary spending.
The good news for Mastercard is that the long-term numbers are very much on its side. Of the 12 recessions the United States has endured since the end of World War II, only three reached the 12-month mark, and none lasted longer than 18 months. In contrast, most economic expansions lasted several years, and two lasted at least 10 years. The long-term growth of the U.S. economy leads to a fairly steady increase in spending activity.
Another reason Mastercard’s management team has been able to successfully guide the company through periods of uncertainty is because it avoids lending and focuses entirely on facilitating payments. While Mastercard’s brand is well-known and it would likely have no problem becoming a respected lender, its avoidance of lending means that the company does not have to set aside capital to cover loan losses and credit defaults during economic downturns. This helps it recover from downturns faster than most financial stocks.
Mastercard is also in the early stages of expanding its infrastructure into faster-growing, but chronically underbanked, emerging markets. On a currency-neutral basis, cross-border payment volume grew 17% year-over-year in the quarter ending in June, and has been growing by a double-digit percentage consistently for as long as we can remember. Whether this expansion is organic or acquisitive, Mastercard has a multi-decade opportunity to infiltrate these underbanked markets in Southeast Asia, Africa, and the Middle East.
Mastercard shares can be had for 29 times forward earnings. While this may seem expensive, it is actually a 14% discount to its average forward price-to-earnings (P/E) ratio over the past five years, and represents a bargain considering the company is expected to grow earnings per share by an annual average of 17% through 2028.
Sirius XM Holdings
Warren Buffett's third sensational stock that becomes a sure buy in September is the only high-profile stock set to split in 2024 that is set to do a reverse stock split. I'm referring to the satellite radio operator Sirius XM Holdings (NASDAQ: SIRI).
The main hurdle to consider with Sirius XM is the health of the auto market. Sirius XM satellite radio services are offered with most new vehicle sales. The company is counting on a certain percentage of these three-month promotional trials to convert to self-pay subscribers. If auto sales weaken, self-pay subscriber additions may slow, and we’ve certainly seen some evidence of a slowdown during the first six months of 2024.
While Sirius XM's period of high growth is long gone, the company has some sustained competitive advantages to lean on that should help enrich patient shareholders over time.
First, it is a legally sanctioned monopoly. While it still competes for listeners with terrestrial and online radio providers, being the only satellite radio company should allow Sirius XM strong subscription pricing power.
There is also a huge difference in revenue generation between Sirius XM and traditional radio providers. While terrestrial and online radio companies rely heavily on advertising to stay afloat, Sirius XM generates less than 20% of its net sales from ads. Its primary revenue driver is subscriptions — about 77% of net sales through the first six months of 2024.
Relying on advertising revenue isn’t a bad thing most of the time, but when downturns hit, they tend to hit terrestrial and online radio operators hard. Since Sirius XM gets the majority of its net sales from subscriptions, its operating cash flow has far fewer ups and downs than traditional radio companies.
The other big catalyst for Sirius XM is its impending merger with Liberty Media's Sirius XM tracking stock, Liberty Group Sirius XMThis combination will create a single class of Sirius XM stock, and Sirius XM will effect a 1-for-10 reverse split once completed. A higher nominal share price should put Sirius XM on the radar of more institutional investors.
Finally, Sirius XM’s forward price-to-earnings ratio of just over 10 is very close to its lowest level in 30 years. Add to that its generous 3.2% yield and Sirius XM is a no-brainer buy.
Should You Invest $1,000 in Amazon Right Now?
Before you buy Amazon stock, consider the following:
He Motley Fool Stock Advisor The team of analysts has just identified what they believe to be the Top 10 Stocks for investors to buy now…and Amazon wasn't one of them. The 10 stocks that made the cut could produce monster returns in the years ahead.
Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, You would have $731,449!*
Stock market advisor offers investors an easy-to-follow blueprint for success, including guidance on how to build a portfolio, regular analyst updates, and two new stock picks each month. Stock market advisor The service has more than quadruple the return of the S&P 500 since 2002*.
*Stock Advisor performance as of August 26, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams The Motley Fool has positions in Amazon, Mastercard, and Sirius XM. The Motley Fool has positions and recommends Amazon, Berkshire Hathaway, and Mastercard. The Motley Fool recommends the following options: January 2025 $370 call options on Mastercard and January 2025 $380 call options on Mastercard. The Motley Fool has a Disclosure Policy.
3 Sensational Warren Buffett Stocks That Are a Sure Buy in September Originally published by The Motley Fool