3 Sensational Warren Buffett Stocks That Slam-Dunk Buys in September

Few investors are more revered on Wall Street than the aptly named “Oracle of Omaha.” Since Warren Buffett became CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) in the mid-1960s, he oversaw a total return of more than 5,700,000% of his company’s Class A shares ( BRK.A ) and led Berkshire to become only the ninth public company to reach the market capitalization plateau of 1 trillion dollars.

When you beat Wall Street’s major stock indexes as much as Buffett has in nearly six decades, you’re going to gather quite a crowd. Investors regularly wait on the edge of their seats to find out what stocks he and his investment team have bought and sold.

Right now, Buffett and his top advisers oversee a portfolio of 45 stocks and $318 billion. However, the outlook for these holdings differs significantly.

As we head into September, three sensational Warren Buffett stocks stand out for all the right reasons and make slam dunk buys.

Amazon

The first outstanding Buffett stock that long-term investors can confidently add to their portfolio in September is the e-commerce leader Amazon (NASDAQ: AMZN).

The biggest knock on Amazon is that it’s cyclical. Most people are familiar with the company because of its world-leading e-commerce segment. If the US or global economy weakens and online retail sales growth slows or reverses, there is a perception that Amazon will be in trouble.

However, there is much more to Amazon than e-commerce. Although online retail sales generate a lot of revenue, the thin margins associated with e-commerce are responsible for little operating cash flow and net income. Rather, Amazon’s cash flow can be traced back to its three high-growth ancillary operating segments.

Amazon’s main focus is its cloud infrastructure services platform, Amazon Web Services (AWS). AWS accounted for a third of global spending on cloud infrastructure services in the quarter ending in June, according to estimates from technology analyst Canalys. For the rest of this decade, enterprises are expected to shift more of their spending to cloud services, which should only fuel double-digit growth potential for AWS.

The second fast-paced operating segment that has been a cash cow for Amazon is advertising services. The ability to attract more than 3 billion visitors to its website each month provides an insatiable attraction for businesses looking to get their message(s) in front of consumers. Whether it’s its growing Amazon content library or its online marketplace, it has little trouble controlling top advertising pricing power.

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The third piece of the puzzle is subscription services like Prime. In April 2021, former Amazon CEO and founder Jeff Bezos noted that Prime had surpassed 200 million subscribers worldwide. 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 possesses exceptional pricing power.

Amazon stock can be bought right now for less than 12 times its estimated 2025 cash flow, which is a 47% discount to its 5-year trailing average cash flow.

MasterCard

A second stock phenom Warren Buffett making an unpopular purchase in September is a global payments processing juggernaut MasterCard (NYSE:MA).

Similar to Amazon, being cyclical is usually the biggest concern for current and potential Mastercard shareholders. When the US and/or global economy weakens, it’s quite normal for consumers and businesses to cut back on discretionary spending.

The good news for Mastercard is that the long-term numbers game is very much on its side. Of the 12 U.S. recessions that have occurred since the end of World War II, only three have reached the 12-month mark and none have exceeded 18 months. In contrast, most economic expansions have lasted several years, with two lasting at least 10 years. The long-term growth of the US economy leads to fairly steady growth in spending activity.

Another reason why Mastercard’s management team has been able to successfully navigate the company through periods of uncertainty is because they are moving away from lending and focusing entirely on facilitating payments. While the Mastercard brand is well-known and would likely have no problem becoming a respected lender, avoiding lending means the company doesn’t have to set aside capital to cover loan losses and credit delinquencies during economic downturns. This helps it recover from downturns faster than most financial stocks.

Mastercard is also still in the early stages of expanding its infrastructure into faster-growing but chronically underbanked emerging markets. Excluding currency changes, the volume of cross-border payments rose 17% year-on-year in the quarter ended in June, and has grown by double-digit percentages consistently as far as the eye can see. 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.

Shares of Mastercard can be picked up for 29 times earnings per year. While that might seem expensive, it’s actually a 14% discount to its average forward price-to-earnings (P/E) ratio over the past five years and is a reasonable bargain, as the company is expected to grow its earnings per share with an annual average of 17% until 2028.

Sirius XM Holdings

The third sensation Warren Buffett to make a quick buy in September is the only high-profile stock in 2024 to undergo a reverse stock split. I’m talking about a satellite radio operator Sirius XM Holdings (NASDAQ: SIRI).

The main headwind to monitor with Sirius XM is the health of the auto market. Satellite radio services from Sirius XM are offered with most new vehicle sales. The company is counting on a certain percentage of these three-month promotional samples to convert to autopay subscribers. If car sales weaken, autopay subscriber additions may slow — and we’ve certainly seen some evidence of a slowdown in the first six months of 2024.

While Sirius XM’s high-growth heyday is long gone, it has a handful of sustained competitive advantages to build on that should, over time, help enrich patient shareholders.

First, it is a legally authorized 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 keep the lights on, Sirius XM generates less than 20 percent of its net sales from advertising. Its main driver of revenue is subscriptions – about 77% of net sales in the first six months of 2024.

Relying on ad revenue isn’t a bad thing most of the time. But when recessions occur, they tend to wipe out terrestrial and online radio operators. Because Sirius XM derives most of its net sales from subscriptions, its operating cash flow has much less ebb and flow than traditional radio companies.

The other big catalyst for Sirius XM is its impending merger with Liberty Media’s Sirius XM tracking stock, Sirius XM Liberty Group. This combination will create a single class of Sirius XM shares, with Sirius XM effecting a 1-for-10 reverse split upon completion. A higher par share price should put Sirius XM on the radar of more institutional investors.

Finally, Sirius XM’s P/E ratio of just over 10 is very close to a 30-year low. When coupled with its consistent 3.2% yield, Sirius XM is a no-brainer buy.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Sean Williams has positions in Amazon, Mastercard and Sirius XM. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway and Mastercard. The Motley Fool recommends the following options: Long January 2025 $370 calls on Mastercard and Short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

3 Sensational Warren Buffett Stocks That Make for Slam-Dunk Buys in September was originally published by The Motley Fool