3 Billionaire No-Brainer Stocks to Buy Right Now

Billionaires devote a lot of resources to researching their investments, so the rest of us could benefit from paying attention to their decisions. The ultra-rich don’t always make the best investments, and your goals may not necessarily align with a billionaire’s, but it can still be a great way to identify high-quality businesses with reasonable valuations.

These three stocks have significant billionaire ownership and impressive fundamentals to back it up.

1. Amazon

Amazon (AMZN -0.08%) is a popular choice among billionaires and hedge fund managers: Ken Griffin, Daniel Loeb and Andreas Halvorsen all have large positions in the stock. It offers reliable revenue growth, diversified operations and impressive cash flow generation, along with a broad economic moat that should protect its competitive position.

AMZN Revenue Data (TTM) by YCharts; TTM = last 12 months.

Amazon is facing increasing competition from the likes of Shopify (STORE 2.42%)and COVID-19 has caused volatility in online shopping demand. However, long-term trends are promising for its core e-commerce business.

It has an absolutely dominant market share that has grown slowly in recent years. E-commerce’s share of total retail spending is growing, and the company should reap the benefits as a market leader.

Image source: Getty Images.

It also maintains a leadership position in cloud infrastructure with Amazon Web Services (AWS), and Prime membership includes one of the most popular media platforms. Both operate in highly competitive markets, but diversify the company’s sources of cash flow. They could also prove to be valuable sources of data as tech giants develop and train AI software.

The stock price-to-free cash flow ratio of 36 might seem a little rich to some investors, but Amazon’s operating earnings and cash flow grew more than 75% in its most recent quarter. The prospect of continued earnings growth may justify this valuation for long-term investors.

2. Visa

Visa (V 0.39%) it’s a major holding company for the likes of Warren Buffett and hedge fund manager Steven Schonfeld. The payment processor is a mature and well-known brand that many investors may not recognize as a fintech stock.

Payment processing has undergone significant disruption in recent years. Innovative solutions have improved the speed and efficiency of transfers, resulting in lower costs. Disruption tends to threaten carriers, but Visa has remained at the top of its industry. It has about 50% market share, depending on the methodology and data source you consider.

Visa benefits from economies of scale, which are a barrier to new entrants. Its scale also allows it to outperform most competitors for product development and strategic acquisitions. It is a well-run business that produces steady income and increasing cash flow.

V Revenue Data (TTM) by YCharts.

Instead of shying away from the disruptive potential of blockchain and other technologies, Visa is leaning toward it. The company supports internal and external projects to improve its payment solutions with new software. This has driven innovation in a range of financial functions such as cross-border transactions, account fee withdrawals, central bank digital currencies and cryptocurrency-linked payment cards.

It’s not easy to find a giant incumbent that can generate tons of cash flow and also likely benefit from disrupting its industry. The stock is available at a forward price-to-earnings (P/E) ratio of less than 25 and pays a small dividend yield. This should be attractive to long-term investors.

3. Home Depot

Home Depot (HD 1.60%) is the leader in the home improvement retail industry with nearly 30% market share. The company’s market dominance and prospects attracted the attention of billionaire investors David Shaw and Ken Fisher.

Home Depot’s scale provides significant competitive advantages. It has a large geographic footprint of stores, which is useful for supply logistics and attracting more foot traffic. Scale also provides bargaining leverage to minimize supplier prices, making it difficult to undercut competitors.

Home improvement is a cyclical industry that fluctuates with consumer confidence, interest rates and the housing market. This occasionally leads to lean times for Home Depot, such as the one we are experiencing now. However, the long-term trend is positive and there are clear catalysts for the future.

Free Cash Flow HD Data by YCharts.

Home ownership rates have recovered since 2015 after the global financial crisis, but ownership is historically low for young adults. Many economists see this creating pent-up demand in the coming decades, with large cohorts of adults set to become new homeowners either through inheritance or improved financial circumstances. This should create favorable conditions for the home improvement sector, and Home Depot shareholders are positioned to benefit from this trend.

Like Visa, Home Depot has a reasonable valuation, with a forward P/E of less than 25. It also pays an attractive dividend yield of 2.6%, so it offers a modest cash yield along with the potential of appreciation over time.