Warren Buffett – who’s built up a net worth of around $100bn from stocks – is widely regarded as the greatest investor of all time. So I like to keep an eye on his portfolio.
Recently, I was scanning Buffett’s portfolio for investment ideas. Here’s a look at the top three stocks I’d buy today.
A Buffett stock with huge growth potential
The first is Amazon (NASDAQ: AMZN), the major player in both online shopping and cloud computing. This year, Amazon shares have underperformed the market so I think it’s a good time to be building a position in the stock.
Amazon’s a massive company with a market capitalisation of around $1.7trn. However, I expect it to get much bigger in the decade ahead. Between now and 2030, the e-commerce industry is expected to grow around 9% per year while the cloud computing industry is forecast to grow 18% per year.
Amazon shares are expensive. Currently, they trade at 50 times next year’s estimated earnings so this means the stock could be volatile.
But this high valuation doesn’t deter me. Amazon shares have always been expensive and avoiding them because of the high valuation is arguably one of the biggest mistakes investors could have made over the last decade.
One of the world’s most powerful brands
There’s a lot to like about Apple, in my view. For starters, the company has a very strong brand. According to Kantar, Apple is the second most powerful brand in the world (behind Amazon, incidentally). This brand power provides a competitive advantage.
Secondly, the company’s very profitable. Over the last three years, return on capital employed has averaged 29%, which is excellent. Third, Apple’s buying back a ton of its own shares. This is essentially pushing up earnings per share.
One risk to consider here is that, in the future, Apple may not be able to get away with charging such high fees in its App Store. This could slow growth.
I think this risk is factored into the valuation however. The stock currently sports a forward-looking P/E ratio of about 26, which I think’s good value.
Benefiting from the shift away from cash
Finally, my third pick would be Visa (NYSE: V), which operates the largest payments system in the world.
I like Visa for two main reasons. Firstly, it stands to benefit from the shift away from cash in the years ahead. Over the next decade, trillions of transactions are set to move from cash to cards and electronic payments.
Secondly, Visa looks set to benefit from the growth of online shopping. For every $1 spent online globally today, around 43 cents goes through the Visa network.
One risk I’m keeping a close eye on here is the threat that ‘buy now pay later’ poses. Some believe this could significantly impact the growth of the credit card industry.
Overall however, I’m very bullish on this Buffett choice. I think Visa’s a great stock to own for the long term.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Amazon, Apple, and Visa. The Motley Fool UK owns shares of and has recommended Amazon, Apple, and Visa. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.