Warren Buffett might be known as a legendary value investor, but don’t ignore his growth holdings. Here, we examine 13 of “the Oracle’s” best growth stocks.

Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B), is known as perhaps the greatest value investor of all time, but that doesn’t mean he has no use for growth stocks.

On the contrary, Buffett has even recently participated in the initial public offering of a red-hot technology stock. The Oracle of Omaha surprised pretty much everyone when Berkshire bought shares in Snowflake (SNOW) as the software firm executed the largest software IPO ever in mid-September.

But while Snowflake does represent an unusual purchase for Buffett’s holding company, it’s hardly his only growth play. The Berkshire Hathaway equity portfolio is, in fact, teeming with growth stocks. Its single-largest holding is a high-performance tech equity, and another blue-chip name Buffett has held for more than 50 years is a growth stock. The designation applies to a host of other holdings, too.

Given that growth has been outperforming value for roughly a decade now, it’s worthwhile to suss out the best of Warren Buffett’s growth stocks. Read on as we look at Berkshire’s top growth holdings based on analysts’ long-term earnings expectations, which range from anywhere between about 9% and more than 40% annually.

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Shares held: 14.2 million
Holding value: $1.4 billion*
Percent of portfolio: N/A
Analysts’ average recommendation: Sell
Analysts’ average LT earnings growth rate: N/A

Snowflake (SNOW, $228.85) is a rarity among Berkshire Hathaway stocks in that Warren Buffett & Co. actually bought shares by way of the company’s initial public offering in mid-September.

“In 54 years, I don’t think Berkshire Hathaway has ever bought a new issue,” Buffett told CNBC ahead of the IPO, which raised $3.4 billion in the largest ever software offering.

SNOW, which offers a way for companies to run their software on various cloud platforms, be they provided by Amazon.com, Microsoft (MSFT) or Google parent Alphabet (GOOGL), has “hot growth stock” written all over it. Indeed, shares more than doubled in the first day of trading.

Given Buffett’s general aversion to technology stocks, the SNOW investment was likely the idea of one of his subalterns, Ted Weschler or Todd Combs. Buffett has made his ardor for Amazon.com and Apple clear, but that’s because of their prowess in retail more than technology.

Snowflake has no long-term consensus earnings growth estimate yet. It’s too new. In fact, only one analyst tracked by S&P Capital IQ covers SNOW, and that lone analyst has a Sell rating on shares. But the company still clearly has massive growth potential given estimates for revenues to more than double to $574.30 million in 2021, then jump another 67% annually to reach $2.7 billion by 2024.

Along the same lines is StoneCo (STNE), the Brazilian financial payments play that Berkshire has owned since late 2018. While Wall Street on average expects a 30.6% profit growth rate through 2023, the lack of growth estimates a couple years further out leaves STNE without a composite long-term average, unlike the rest of the stocks you’ll read about. Still, it’s clear the pros see exciting things for StoneCo going forward.

* Based on the Sept. 21 closing price of $228.85 per share.

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Barrick Gold

Shares held: 20.9 million
Holding value: $563.6 million
Percent of portfolio: 0.28%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 8.9%

Warren Buffett is the farthest thing from a gold bug. “It doesn’t do anything but sit there and look at you,” he’s been known to say. But investing in gold isn’t exactly the same thing as investing in a gold miner such as Barrick Gold (GOLD, $28.19).

True, mining stocks are sensitive to the price of whatever commodity they are digging out of the ground. But at least they produce something, as in cash flow. In the case of Barrick, it even pays a small dividend.

Besides, Barrick has more going for it than gold. It also mines copper, which is used in just about everything. As such, it’s a bet on a return to global growth.

Although it is engaged in the mining of the “barbarous relic,” GOLD is included in more than a dozen growth indices and has a long-term growth forecast of 8.9% annually, according to S&P Capital IQ.

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Shares held: 24.7 million
Holding value: $6.8 billion
Percent of portfolio: 3.3%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 9.0%

Moody’s (MCO, $280.04) is a business and financial services firm best known for its Moody’s Investors Service credit rating arm – one of the three major American business credit ratings agencies alongside Standard & Poor’s and Fitch Ratings.

Additionally, it offers financial analysis technology via Moody’s Analytics, and it’s expected to deliver a pretty good long-term growth rate as well. Analysts polled by S&P Capital IQ project MCO to produce average annual earnings growth of 9%.

“We remain confident in Moody’s earnings growth drivers (favorable secular drivers, pricing power, emerging market growth, GDP-driven issuance, and improving margins),” write William Blair analysts, who rate MCO at Outperform (equivalent of Buy).

MCO is a longtime, significant holding in the Berkshire Hathaway equity portfolio. Indeed, at more than 3% of the Berkshire Hathaway portfolio, Moody’s is a top-10 Buffett stock.

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Shares held: 4.3 million
Holding value: $1.3 billion
Percent of portfolio: 0.65%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 9.3%

Not many brick-and-mortar retailers can claim a long-term growth forecast of 9.3%, but Costco (COST, $339.57) isn’t just any retailer. In fact, the company has boasted double-digit year-over-year comparable-store sales growth for several months on end now.

And unlike many Buffett growth stocks, the Oracle is happy to talk about the warehouse club.

“Here (Kraft Heinz is), 100 years plus, tons of advertising, built into people’s habits and everything else,” Warren Buffett told CNBC in a February 2019 interview. “And now, (Costco’s) Kirkland, a private-label brand, comes along and with only 250 or so outlets, does 50% more business than all the Kraft Heinz brands.”

Indeed, Costco’s Kirkland store-branded products are one of the warehouse retailer’s biggest draws.

Costco is not a particularly large holding, at 0.65% of the Berkshire Hathaway portfolio, but it seems to be a cherished one.

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American Express

Shares held: 151.6 million
Holding value: $14.4 billion
Percent of portfolio: 7.1%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 10.2%

Buffett likes to say this his preferred holding period is “forever.” Look no further than Dow component American Express (AXP, $98.17) to understand just how serious he is about investing for the long haul.

Berkshire entered its initial stake in the credit card company in 1963, when a struggling AmEx badly needed capital. Buffett obliged, getting favorable terms on his investment. He has played the role of white knight many times over the years, including during the 2008 financial crisis, as a means to get stakes in good companies at a discount.

Berkshire Hathaway, which owns 18.8% of American Express’ shares outstanding, is by far the company’s largest shareholder. (No. 2 Vanguard owns 6.0%.) Buffett praised the power of AmEx’s brand at Berkshire’s 2019 annual meeting: “It’s a fantastic story, and I’m glad we own 18% of it,” he said at the time.

As for growth: The pros are looking for double-digit earnings expansion over the next three to five years, according to S&P Capital IQ.

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Shares held: 980.6 million
Holding value: $89.4 billion
Percent of portfolio: 43.9%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 11.5%

“I don’t think of Apple as a stock. I think of it as our third business.”

That’s one of the many songs of praise Buffett has belted out for Apple (AAPL, $110.08), which is the undisputed king of the Buffett stocks. Shares in the nearly $2 trillion company now make up nearly 44% of the Berkshire Hathaway portfolio’s value – its single largest holding, and it’s not even close.

The Oracle of Omaha has only occasionally dabbled in technology stocks. But he bought Apple with two fists, and he’s more than happy to discuss his ardor for AAPL. As he has said more than once on CNBC, he loves the power of Apple’s brand and its ecosystem of products (such as the iPhone and iPad) and services (such as Apple Pay and iTunes).

“It’s probably the best business I know in the world,” Buffett said in February. “And that is a bigger commitment that we have in any business except insurance and the railroad.”

Perhaps most incredible, even with a market value of almost $2 trillion, analysts still forecast AAPL to deliver average annual earnings growth of 11.5% over the next three to five years. That puts it among the best growth stocks in Berkshire’s repertoire.

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Shares held: 9.9 million
Holding value: $1.9 billion
Percent of portfolio: 0.95%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 14.5%

Visa (V, $197.45) operates the world’s largest payments network, and thus is well-positioned to benefit from the growth of cashless transactions and digital mobile payments. Like Mastercard, Visa was the idea of lieutenants Todd Combs and/or Ted Weschler (Buffett won’t tell). And like Mastercard, Buffett wishes Berkshire had bought more.

No doubt the company’s expected long-term growth rate of 14.5% adds to its appeal.

Berkshire Hathaway first bought Visa in the third quarter of 2011, and it has proven to be a mammoth winner. Including dividends, Visa stock has delivered an annualized return of more than 28%.

“If I had been as smart as Ted or Todd, I would have (bought Visa),” Buffett told shareholders at the 2018 annual meeting.

The Visa stake is a modest but not insignificant holding at roughly 1% of Buffett’s portfolio. However, Berkshire’s half-percent stake in Visa doesn’t even put it among the top 25 investors.

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Sirius XM

Shares held: 50 million
Holding value: $293.5 million
Percent of portfolio: 0.14%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 15.1%

Sirius XM (SIRI, $5.11) – a company that reaches more than 100 million listeners via its core satellite radio business and Pandora, which it acquired in 2018 – has an eye-opening long-term growth forecast of 15.1%.

Buffett first bought shares in SIRI during the final quarter of 2016, but his affinity for the position has been waning of late.

Berkshire sold a small portion (1%) of its Sirius XM position during the third quarter. The Oracle of Omaha then trimmed his position by another 3.9 million shares, or about 2% of Berkshire’s stake, in Q1 2020.

Berkshire Hathaway really took out the hatchet during this year’s second quarter, however, unloading more than 82 million shares, or 62% of the remaining stake. That brings its ownership down from 3% to a little more than 1%. But that still makes Buffett the fourth-largest owner of SIRI stock, but well behind majority shareholder Liberty Global’s (LBTYA) 72% stake.

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Synchrony Financial

Shares held: 20.1 million
Holding value: $446 million
Percent of portfolio: 0.22%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 17.5%

Synchrony Financial (SYF, $25.90) jibes with Buffett’s affection for credit-card companies, which, as a group, are high-growth names.

A major issuer of charge cards for retailers, Synchrony was spun off of GE Capital in 2014. It’s both a lender and a payments processor – like Buffett’s beloved American Express – but it caters to customers who skew more toward the middle and lower end of the income scale.

Analysts project the company to generate average annual earnings growth of 17.5% over the next three to five years, according to a survey by S&P Capital IQ.

Interestingly, Buffett trimmed 3% of his stake in Q1 but left it alone in the second quarter, despite cutting a number of other financial-stock holdings. He now owns 3.4% of Synchrony Financial’s shares outstanding, which makes him the firm’s seventh-largest shareholder.

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Shares held: 1.7 million
Holding value: $425.2 million
Percent of portfolio: 0.21%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 18.2%

Warren Buffett, who already is positioned in home furnishings retail via its Nebraska Furniture Mart subsidiary, added more exposure to the space with his Q3 2019 entry into RH (RH, $313.97).

RH, formerly known as Restoration Hardware, operates 107 retail and outlet stores across the U.S. and Canada. It also owns Waterworks, a high-end bath-and-kitchen retailer with 15 showrooms. Not unlike Costco, RH has a hot growth rate for a brick-and-mortar retailer. Indeed, analysts’ projected long-term growth rate stands at 18.2%.

Buffett typically doesn’t comment on Berkshire Hathaway’s holdings, and that’s true for RH, so it’s not certain exactly what attracted the Oracle of Omaha. It is possible this was a move made by Buffett lieutenant Ted Weschler or Todd Combs. But the stake fits broadly with Buffett’s worldview. Buffett stocks tend to be bets on America’s growth, which is exactly what a bet on housing and housing-related industries is.

Berkshire is now the fourth-largest investor in the home retailer by virtue of owning about 8.9% of all RH shares outstanding.

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Shares held: 4.6 million
Holding value: $1.4 billion
Percent of portfolio: 0.66%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 18.5%

Warren Buffett gives credit where credit is due. While Berkshire Hathaway does indeed own Mastercard (MA, $327.85), he has nodded to his portfolio managers Todd Combs and Ted Weschler, and said he wishes he had pulled the trigger on the opportunity earlier.

“I could have bought them as well, and looking back, I should have,” Buffett said about Visa and Mastercard in 2018, referring to his own investment in American Express.

Mastercard, which boasts 926 million cards in use across the world, is one of several growth stocks in the payment processing industry under the Berkshire umbrella. However, after mostly leaving the stock alone since entering a position during the first quarter of 2011, Buffett sold off 300,000 shares, or 7% of the stake, in Q2 2020.

No one knows why Berkshire trimmed its position, but presumably it wasn’t because of Mastercard’s growth prospects. Analysts’ long-term growth forecast sits at 18.5%, according to S&P Capital IQ.

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Shares held: 533,300
Holding value: $1.5 billion
Percent of portfolio: 0.72%
Analysts’ average recommendation: Strong Buy
Analysts’ average LT earnings growth rate: 33.1%

Amazon.com (AMZN, $2,960.47) has been one of the most electric blue chips of 2020, as well as one of the splashiest recent additions to the Berkshire Hathaway portfolio. And with a long-term growth forecast of 33.1%, it’s fair to assume that AMZN will continue on its electrifying ways.

The holding company disclosed its 483,300-share position after the first quarter of 2019, then added another 54,000 shares the next quarter.

Amazon wasn’t Buffett’s idea, by his own admission. Before Berkshire Hathaway submitted its first-quarter regulatory filing with the Securities and Exchange Commission, Buffett told CNBC: “One of the fellows in the office that manage money … bought some Amazon, so it will show up (when that file is submitted).”

Buffett has long been an admirer of Amazon CEO Jeff Bezos, he admitted in an interview, and said he wished he’d bought the stock sooner. “Yeah, I’ve been a fan, and I’ve been an idiot for not buying (AMZN shares),” Buffett told CNBC.

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Charter Communications

Shares held: 5.2 million
Holding value: $2.7 billion
Percent of portfolio: 1.3%
Analysts’ average recommendation: Buy
Analysts’ average LT earnings growth rate: 41.4%

Charter Communications (CHTR, $614.34) markets cable TV, internet, telephone and other services under the Spectrum brand, which is America’s second-largest cable operator behind Comcast (CMCSA). It greatly expanded its reach in 2016 when it acquired Time Warner Cable and sister company Bright House Networks.

Buffett entered CHTR in the second quarter of 2014, but he has seemingly lost his love for the telecom company in recent years. His position has been trimmed down from 9.4 million shares in early 2017 to just 5.2 million shares as of Berkshire’s most recent 13F, including a 210,000-share reduction in Q2 2020.

Certainly, Wall Street’s long-term growth forecast wasn’t a deciding factor in why Buffett trimmed his stake. Indeed, CHTR is the best growth stock Berkshire holds, according to an average annual growth forecast of 41.4% over the next three to five years.

Berkshire Hathaway’s remaining stake represents 1.3% of its holdings, and a decent-sized 2.5% ownership in Charter.

Author: Dan Burrows

Source: Kiplinger: 13 Best Warren Buffett Growth Stocks

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