While the S&P 500 turned in an underwhelming performance over the past year and lost nearly 10% of its value, Warren Buffett’s holding company Berkshire Hathaway‘s (BRK.A 0.30%) (BRK.B 0.28%) Class A shares held their ground nicely with gains of 2.4% during the same period.
The Oracle of Omaha easily outpaced the broader market’s performance amid the downturn, which can be attributed to the Berkshire CEO’s smart investment strategies. However, not all stocks in Buffett’s portfolio escaped the broad market sell-off. Shares of Apple (AAPL 1.01%), Snowflake (SNOW -3.00%), and Amazon (AMZN -1.23%) dropped 15%, 32%, and 46%, respectively, over the past year. However, their declines mean that investors have an opportunity to buy potential long-term winners at attractive valuations.
Let’s look at the reasons why buying these stocks right now is a no-brainer.
Apple stock may have been an underperformer over the past year, but the tech giant generates solid dividend income for Berkshire Hathaway. That’s not surprising, as Apple is Berkshire’s biggest holding. And investors now have an opportunity to buy this dividend-paying tech stock at a discount, as it is trading at 22 times trailing earnings, compared to its five-year average price-to-earnings ratio of 24.
Of course, Apple faces near-term headwinds thanks to a slowdown in sales of smartphones and personal computers (PCs), which explains why its top and bottom lines are expected to grow slowly in fiscal 2023. Analysts anticipate a 2.3% jump in Apple’s revenue this year to $403 billion, while earnings could increase to $6.17 per share from $6.11 per share last fiscal year.
However, investors would do well to focus on the bigger picture, as Apple’s bottom line is estimated to increase at nearly 9% a year for the next five years. But it also wouldn’t be surprising to see it clock faster growth.
Apple is dominating the 5G smartphone space in terms of revenue share. Counterpoint Research points out that Apple’s revenue share of the 5G smartphone market stood at 42% in the third quarter of 2022, up from 37.1% in the year-ago period thanks to an increase in the average selling price (ASP) of the iPhone.
With the global 5G smartphone market expected to generate over $4 trillion in annual revenue by 2027, Apple’s terrific revenue share in this space should turn out to be a solid catalyst for the company’s long-term growth. Additionally, the company’s moves in emerging markets such as India could unlock another major growth opportunity in the long run.
So it would be a good idea for investors to accumulate Apple stock for the long run considering its attractive valuation and the potential acceleration in the company’s growth.
Snowflake doesn’t look like a typical Buffett stock given its expensive valuation, but Berkshire holds a 1.9% stake in the cloud platform provider. A closer look at Snowflake’s financial performance and the industry in which it operates suggests that this could turn out to be a smart investment in the long run.
The company has a massive total addressable revenue opportunity worth $248 billion spread across multiple applications such as data warehouse, data lake, data science, and cybersecurity. More importantly, Snowflake’s growth trajectory suggests that it is doing well to take advantage of the huge revenue opportunity it is sitting on.
That momentum looks like it’s here to stay, as Snowflake had $3 billion worth of remaining performance obligations at the end of the third quarter of fiscal 2023 (for the three months ended Oct. 31, 2022). The metric refers to the “amount of contracted future revenue that has not yet been recognized.” Given that Snowflake generated $1.86 billion of revenue in the trailing 12 months, it is evident that the company has built up an impressive revenue pipeline.
Not surprisingly, Snowflake’s revenue is expected to grow at a terrific pace in the coming years as well following a 68% jump in fiscal 2023 to $2.05 billion.
The company should be able to match Wall Street’s ambitious revenue growth estimates given that it is among the leading players in fast-growing categories such as data warehouse, with a market share of 18.6%. The data warehouse market alone is expected to clock nearly 23% annual growth through 2030, which should pave the way for incremental revenue growth at Snowflake.
Buying Snowflake stock will come at a price, as it is trading at a rich 24 times sales. But the company’s eye-popping growth and its ability to sustain that growth justify that valuation. Also, investors are getting a relatively good deal on this cloud stock right now, as it trades at a much cheaper level than where it was a year ago.
As such, growth investors looking to buy a fast-growing company might want to consider Snowflake given its relatively attractive valuation and rapid growth.
With shares trading at less than 2 times sales, buying Amazon looks like a no-brainer right now given the company’s multiple catalysts, which should help it deliver a stronger 2023. From a potential recovery in e-commerce sales to the secular growth of the cloud computing market and the company’s fast-growing advertising business, investors have several reasons to buy this Warren Buffett stock at its cheap valuation.
Global e-commerce sales are expected to increase 10.4% in 2023 following a 9.7% increase in 2022, according to eMarketer. As a result, Amazon should enjoy favorable year-over-year comparisons in 2023 — especially since the company had to deal with a big slowdown in e-commerce growth last year after it grew 17% in 2021.
Meanwhile, Amazon’s 34% share of the cloud services market is another reason to be positive about the company’s prospects this year. Gartner estimates that global spending on public cloud services could increase close to 21% this year to $592 billion, which would be an improvement over last year’s increase of 19%. So Amazon’s two key end markets are on track to enjoy healthy growth in 2023.
Throw in the company’s solid prospects in the advertising business, which has been growing at a faster pace than the broader market, and it is easy to see why Amazon’s growth is expected to pick up pace this year. It is expected to swing to a profit of $1.62 per share from last year’s estimated loss of $0.11 per share. Additionally, its top-line growth is also expected to gather momentum after increasing an estimated 8.6% in 2022 to $510 billion.
All this indicates that Amazon stock could head higher in 2023, and it could sustain its growth over the long run as well, which is why investors should consider buying it while it is still down.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Apple, Berkshire Hathaway, and Snowflake. The Motley Fool recommends Gartner and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.