2019 saw the ‘Oracle of Omaha’ reap the benefits of making some unconventional investments
Analysts and investors have studied and analyzed Warren Buffett’s moves for decades and nearly all would agree that there are two types of investments that the financial guru never makes: technology and IPOs.
Technology, because he never invests in something he doesn’t understand, and IPOs because they’re surrounded by hype. It seems, however, that the CEO of Berkshire Hathaway (NYSE: BRK.A) still has a few surprises up his sleeve. Here are his top three performing stocks of the past year.
1. Moody’s Corporation
Moody’s (NYSE: MCO) issues credit ratings for debt securities (bonds) and provides financial analysis software and services. Buffett has been accumulating the stock since 2001 and holds nearly 25 million shares, representing just over 13% of the company. Being one of only three major debt-rating agencies, Moody’s has a solid competitive moat (a term popularized by Buffett himself).
In 2019, the Federal Reserve made interest rate cuts, which gave companies the confidence to issue debt. This meant more ratings were needed. That, combined with growth in Moody’s Analytics software segment, made shares of the company rise nearly 70% in the year. Moody’s has had a 138% growth in revenue in the last decade (from $2.032 billion in 2010 to $4.829 billion in 2019). This is a solid company that is likely to perform well this year.
2. Apple Inc.
Apple (NASDAQ: AAPL) is one of the most recognizable brands in the world. There are 100 million iPhone users in the U.S. and Warren Buffet finally joined their ranks after notoriously being a long-time flip phone owner on February 24, 2020. After one of his portfolio managers bought $1 billion worth of Apple stock in 2016, Buffett studied the stock and became comfortable with this technology after seeing his grandchildren’s loyalty to its products. Today, Berkshire Hathaway owns roughly 250 million shares (5.5% of the company), valued at $65 billion.
2019 saw a decline of 14% in iPhone sales for the company. However, iPad sales rose 16%, wearables went up 41% (AirPods sales alone accounted for roughly $6 billion), and services (Apple Arcade, Apple TV+, Apple News+, Apple Credit Card) surged 16%.
As a result, the company’s share price grew 86% in the year. For 2020, Apple is poised to release 5G compatible iPhones as well as more than double its AirPods sales to $15 billion. The company comprises roughly 31% of Berkshire Hathaway’s portfolio. Warren Buffett has said in the past that he would love to own Apple outright. It would be safe to assume that the company is a good investment for 2020.
3. StoneCo Ltd.
StoneCo (NASDAQ: STNE) is a Brazilian financial technology company that made its IPO in October of 2018, with Berkshire Hathaway scooping up over 14 million shares. It owns over 5% of the company, valued at over $565 million. StoneCo grew its client base by 83% in one year (ending Q3 of 2019).
In Brazil, 85% of transactions are done in cash and 55 million people are without bank accounts. StoneCo thrives in this environment as they offer consumers and merchants a way to conduct business without cash or a bank account. Growth is driven by new merchants joining and higher take rates (the company’s percentage of a transaction). With its customer base growing and a higher take rate ($1.87 versus $1.81 a year ago), StoneCo is poised for growth in 2020. Additionally, the company can expand to more markets in Latin America.
StoneCo and Apple are both stocks that nobody would have predicted Berkshire Hathaway investing in due to Warren Buffett’s aversion to not only the technology sector but IPOs in general. Surprisingly, a company that checks off both boxes, StoneCo was the best performing stock in Berkshire Hathaway’s portfolio last year, with its price surging more than 116%. Since technology stocks no longer put him off, perhaps Buffett can take a bigger interest in blue-chip tech stocks like Amazon (NASDAQ: AMZN) or take a position in Alphabet Inc. (NASDAQ: GOOG).
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold no positions in companies mentioned above. Read our full disclosure policy here.