While Berkshire Hathaway's overall stock portfolio remains largely value focused, CEO Warren Buffett's investment conglomerate has also made a much bigger push into the technology sector over the last decade. In addition to making Apple its largest stock holding, Berkshire has also established smaller positions in other promising tech companies -- some of which could deliver incredible returns.
If you're interested in potentially explosive stocks that still trade at big discounts compared to previous highs, read on for a look at three of the most promising growth stocks owned by Buffett's company.
1. Amazon
Berkshire first bought shares of Amazon (AMZN -0.83%) in 2019, and the Oracle of Omaha lamented not having made the move sooner. While Buffett's company has held off on purchasing more of the tech titan's stock in subsequent years, the business's long-term outlook remains incredibly promising, and it wouldn't be shocking to see Berkshire add more Amazon shares in the not-too-distant future.
With shares down about 40% from their high, the technology leader is trading in roughly the same range as it was when Berkshire last bought shares, and it looks like the market is underestimating Amazon right now.
Macroeconomic pressures have tamped down on sales and earnings performance over the last year, but few businesses look better positioned for the long haul than Amazon. Its leadership in cloud infrastructure services positions it to benefit from the industry's growth, its e-commerce infrastructure and capabilities are utterly unparalleled in much of the world, and the company has a fantastic track record when it comes to innovation and branching into new markets.
In addition to its fast-growing digital advertising unit that's quickly emerging as a key new business pillar, there's a good chance Amazon will be able to score huge wins with artificial intelligence (AI) technologies. Between the introduction of services like the company's recently announced Bedrock generative AI platform and improvements that artificial intelligence will bring to its e-commerce and cloud services businesses, the tech giant is likely just starting to benefit from this revolutionary trend.
2. Snowflake
Since buying a stake in Ford upon its public debut in 1956, a Buffett-led company has only invested in one other company on the day of its initial public offering. That company is Snowflake (SNOW -3.59%) -- a provider of data warehousing and analytics software that's been growing at a rapid pace.
Snowflake makes it possible to combine, store, and analyze data from disparate cloud sources. It also provides tools for sharing and monetizing data and a platform for building analytics-focused applications. Last year, the company grew its product revenue roughly 70% and posted a non-GAAP (adjusted) free cash flow of 25%, and it expects to post the same margin this year and grow product revenue by another 40%.
While the overall business continues to look strong and has incredible long-term expansion potential, macroeconomic headwinds are putting some pressure on Snowflake's near-term sales growth outlook and valuation.
In addition to trading down 64% from its lifetime high, Snowflake stock is also down roughly 38% from market close on the day of its IPO. That means it's possible to buy the stock at a substantial discount compared to the price that Buffett and Berkshire got on the day the data specialist's stock started trading. For growth-oriented investors, taking a buy-and-hold approach with Snowflake could have tremendous payoffs.
3. StoneCo
If you only looked at StoneCo's (STNE 0.48%) recent sales and earnings growth, the Brazilian fintech's current valuation profile might strike you as almost mindbogglingly cheap. The provider of payment-processing services, enterprise software, and credit offerings increased its revenue 44% year over year in the fourth quarter, and its adjusted earnings swung from a loss of approximately $6.4 million in the prior-year period to a profit of $46.4 million.
STNE PS Ratio (Forward) data by YCharts
Yet despite sales and earnings performance that would seemingly inspire much higher valuation multiples, StoneCo is valued at just 20 times this year's expected earnings and less than 1.7 times expected sales. Why does the company still trade at such a big discount relative to its growth rates? The main reason is that the fintech still carries a substantial amount of bad credit in its loan portfolio due to pandemic-related challenges and bad underwriting standards.
While StoneCo has discharged or sold off much of its bad debt at aggressive, clearance-level prices, it still carries approximately $79 million in bad debt. It's probably safe to chalk that figure up as a loss against future earnings, but this is a company that generated more than half that sum in adjusted profit in Q4 and has a market cap of roughly $3.8 billion.
StoneCo's payment-processing business is still serving up strong results, performance for the enterprise software segment has been solid, and the company is reorganizing its credit business for a relaunch. Still down 86% from its high, the stock looks like a smart buy right now.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Noonan has positions in StoneCo. The Motley Fool has positions in and recommends Amazon.com, Apple, Berkshire Hathaway, Snowflake, and StoneCo. The Motley Fool has a disclosure policy.
