2 Warren Buffett Stocks That Are Loud Buys Right Now

It’s hard to argue with results, and the Oracle of Omaha has an extensive track record of great investments. He doesn’t necessarily hit on every one of his beliefs, but it’s a good idea for investors to pay attention to his logic.

The two stocks below offer a compelling combination of growth, cash flow, sustainable competitive advantages and reasonable valuation. It should at least be on every investor’s radar.

1. Visa

Warren Buffett likes to own companies that generate cash flow and have sustainable competitive advantages. from Berkshire Hathaway significant investment in Visa (V -0.22%) reflect these qualities.

Consumers often associate Visa with banks because the brand appears prominently on credit and debit cards, but it is not a financial institution. Visa provides payment processing services; is a fintech business that provides “facilities” for transactions across the globe.

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Visa has the largest market share among its peers, so its financial results depend on competitive performance and overall economic activity. Payment volumes rise and fall with economic cycles, and Visa can’t do much to avoid this. However, the manufacturing industry is expected to average double-digit annual growth over the next decade. If investors can handle cyclicality, long-term trends create an optimistic basis for continued growth.

The financial sector is being disrupted by blockchain and other fintech innovations. Disruption is a challenge for incumbents like Visa, so investors need to be on the lookout for new forces shaping the market right now.

Fortunately, incumbents can also benefit from disruption if they embrace innovation and stay ahead of emerging trends. That’s easier said than done, but Visa seems to be navigating these challenges so far. It has maintained a large market share, continued to expand, and increased its already impressive return on invested capital (ROIC) in recent years. These are all signs that new technologies are not forcing Visa out of the way.

V YCharts ROI data.

Visa’s forward price-to-earnings (P/E) ratio is 23.5 right now. That’s an attractive valuation for a reliable cash-flow powerhouse that offers 10% earnings growth and nearly 20% earnings growth.

2. Amazon

Amazon (AMZN -0.49%) it’s maturing, so it may have lost some of its appeal to growth investors who were enamored with its uninterrupted sales expansion in years past. Still, the company is settling comfortably into a cash-flow-generating role, just as it landed on Buffett’s short list.

Amazon reported 10% revenue growth in its most recent quarter, which is respectable. Much of these gains go directly to the bottom line because the company carefully controls its operating expenses. It delivered a 75% increase in operating profit and cash flow.

As the e-commerce industry normalizes due to pandemic-related disruptions, Amazon continues to grow its dominant market share. The scale and focus on logistics and technology creates a formidable economic moat that is hard to match for any competitor, even a major retail powerhouse like Walmart.

Amazon has complemented its core e-commerce operations with a market-leading cloud infrastructure business, Amazon Web Services (AWS). Making yourself an indispensable part of the modern technology sector is a smart move, even if it’s a relatively low-margin business competing with giants like Alphabet and Microsoft.

Amazon has also become a major player in content streaming. This has proven to be a challenging business model for other streaming platforms, but Amazon minimizes the challenges of acquiring and retaining subscribers thanks to Prime coverage. The world of media has changed drastically in the last 15 years, throwing away many legacy powers. Amazon moved quickly to assume a leadership role in the new landscape.

This tech giant has successfully transformed itself into a profitable enterprise that delivers impressive cash flow growth. The company’s substantial competitive advantages bode well for future cash flows. Its enormous scale should fuel key investments in AI and other emerging technologies in the coming years, by funding acquisitions and domestic research and development (R&D) spending.

With a forward P/E ratio of over 35, Amazon’s valuation is slightly more expensive than Visa’s. However, the price is acceptable for long-term holders who want exposure to a high-quality company with clear growth prospects.