In this piece, we will take a look at Warren Buffett's growth stock picks. If you want to skip our introduction to the investor and growth investing, then head on to Warren Buffett's 5 Growth Stock Picks.
Warren Buffett is one of the most successful investors of our time. His investment strategy depends on identifying firms with solid business models that are primed for growth and market capture to profit from the resulting boost to the share price. He also has one of the largest non-bank investment portfolios in the stock market, with our research suggesting that Berkshire Hathaway's portfolio by the end of this year's second quarter was worth a whopping $348 billion. The investments in the portfolio are not evenly spread out, since Berkshire's biggest stake is in the Cupertino, California consumer technology giant Apple Inc. (NASDAQ:AAPL). This stake is worth an unbelievable $177 billion and accounts for 51% of Mr. Buffett's overall holdings.
However, while he might be absolutely sure about the future prospects of Apple, a firm that also pays a 24 cent dividend for a 0.55% yield, the second quarter saw Mr. Buffett take a bullish stance on a different sector. The Federal Reserve's aggressive interest rate hikes this year have pummeled a lot of sectors, and one of the hardest hit among these has been the real estate industry. Within real estate, office companies have been hit particularly hard since not only have the high rates made it difficult for firms to raise capital and make payments on existing loans, but the trend towards remote working has also left office property owners scratching their heads. For more details, check out 15 Worst Performing REITs in 2023.
While Mr. Buffett kept away from the office real estate sector, he did buy a lot of shares in home building companies. Specifically, the June quarter saw him scoop up shares of three construction firms. These are NVR, Inc. (NYSE:NVR), Lennar Corporation (NYSE:LEN), and D.R. Horton, Inc. (NYSE:DHI). Berkshire Hathaway cumulatively invested $814 million in the companies during the quarter. Out of these, the biggest stake is in D. R. Horton, as the investment firm bought 5.9 million shares that were worth $726 million.
D. R. Horton is one of America's largest home building companies in terms of volume, and the current high rate environment that has sapped consumer budgets would lead one to believe that its shares should be down considerably year to date. However, when we look at the stock's year to date performance, we find out that D. R. Horton's shares are up by 29% year to date, in line with the 30% gains of the S&P Homebuilders Select Industry Index during the same time period. The industry has also performed well this year in terms of earnings, and the reason behind this is an interesting one that isn't often talked about. Simply put, home builders benefited from the surge in demand from the low rate coronavirus environment, and as interest rates were jacked up, there were able to significantly reduce their prices and offer buyers mortgage rates as low as 5%. This clever adaptation to the market environment has translated into strong share price gains for home buildings stocks, with investment bank Deutsche Bank penning an optimistic note for the sector in June when it shared:
With continued improvement in demand fundamentals and book valuations fairly attractive by historical standards, our view is that homebuilder stocks can climb meaningfully higher.
That said, we also overlay an actionable, stock-specific theme, encouraging investors to favor builders with executives dedicated to systematically and programmatically improving returns on inventory, growing tangible book value per share, and letting multiples follow those fundamentals.
. . .We expect solid demand for new housing to accompany a continuing normalization of margins and returns, and as book values grow, the stocks should generally move higher, but we see opportunity for stock selection.
We looked to identify those builders with higher post-pandemic returns on inventory, who can also be reasonably expected to make solid capital allocation choices that consistently improve return on equity.
Seems like Warren Buffett agrees with Deutsche Bank when it comes to his latest stock picks. Today, we'll look at other growth stocks in his portfolio. As a refresher, a growth stock is typically a company that is expected to grow its earnings in the future. This is reflected in its share price, which is significantly higher than the firm's earnings per share. Some top Warren Buffett growth stocks are Amazon.com, Inc. (NASDAQ:AMZN), Markel Group Inc. (NYSE:MKL), and StoneCo Ltd. (NASDAQ:STNE).
To compile our list of Warren Buffett's growth stocks, we took a look at Berkshire Hathaway's investment portfolio for Q2 2023 and selected the stocks that have a price to trailing earnings ratio higher than 30.
Warren Buffett's 11 Growth Stock Picks
11. VeriSign, Inc. (NASDAQ:VRSN)
Berkshire Hathaway's Q2 2023 Investment: $2.8 billion
Latest P/E Ratio: 31.07
VeriSign, Inc. (NASDAQ:VRSN) enables website owners and developers to register their websites and use different site names. The firm is continuing to benefit from the global shift to the Internet, with its second quarter revenue growing by $20 million.
Warren Buffett's Berkshire Hathaway owned 12.8 million VeriSign, Inc. (NASDAQ:VRSN) during Q2 2023, allowing it to own a massive billion stake which also made the firm the internet company's largest investor in our database. Including Berkshire, 35 of the 910 hedge funds part of Insider Monkey's database have also invested in VeriSign, Inc. (NASDAQ:VRSN).
VeriSign, Inc. (NASDAQ:VRSN) joins Markel Group Inc. (NYSE:MKL), Amazon.com, Inc. (NASDAQ:AMZN), and StoneCo Ltd. (NASDAQ:STNE) in our list of Warren Buffett's top growth stock picks.
10. Visa Inc. (NYSE:V)
Berkshire Hathaway's Q2 2023 Investment: $1.9 billion
Latest P/E Ratio: 31.84
Visa Inc. (NYSE:V) is a financial services firm that enables cashless transactions through its cards and payment terminals. The firm is currently being investigated by the U.S. government for charging retailers extra for not using its token technology.
By the end of this year's second quarter, 171 of the 910 hedge funds surveyed by Insider Monkey had held a stake in the company. Visa Inc. (NYSE:V)'s largest hedge fund shareholder out of these is Chris Hohn's TCI Fund Management since it owns 17.7 million shares that are worth $4.2 billion.
9. Activision Blizzard, Inc. (NASDAQ:ATVI)
Berkshire Hathaway's Q2 2023 Investment: $1.2 billion
Latest P/E Ratio: 33.14
Activision Blizzard, Inc. (NASDAQ:ATVI) is one of the biggest video game developers in the world. It is the only investment of its kind in Berkshire's portfolio, and Mr. Buffett cut his stake in the company by a sizeable 71% during this year's second quarter. His latest investment is worth $1.2 billion and analysts have penned in a $4 upside for the shares.
During the same time period, 134 out of the 910 hedge funds part of Insider Monkey's research had also bought Activision Blizzard, Inc. (NASDAQ:ATVI)'s shares. Mathew Hallbower's Pentwater Capital Management is the company's biggest investor courtesy of its $1.7 billion stake.
8. Johnson & Johnson (NYSE:JNJ)
Berkshire Hathaway's Q2 2023 Investment: $54 million
Latest P/E Ratio: 34.99
Johnson & Johnson (NYSE:JNJ) is a healthcare and pharmaceutical firm, which is one of the largest of its kind in the world. The firm is in a bit of trouble these days since a heart pump made by a subsidiary that it acquired for a whopping $16.6 billion is now being recalled.
88 of the 910 hedge funds polled by Insider Monkey for their June quarter of 2023 investments had invested in the company. Johnson & Johnson (NYSE:JNJ)'s largest hedge fund shareholder is Ken Fisher's Fisher Asset Management through an investment worth $1.1 billion.
7. Floor & Decor Holdings, Inc. (NYSE:FND)
Berkshire Hathaway's Q2 2023 Investment: $496 million
Latest P/E Ratio: 35.35
Floor & Decor Holdings, Inc. (NYSE:FND) is an American firm that sells flooring and other products used inside houses. A lack in discretionary spending impacts the firm's customers, and this is evident in its two latest quarters in which it has either missed or met analyst EPS estimates.
Berkshire Hathaway had invested $496 million in Floor & Decor Holdings, Inc. (NYSE:FND) as of June 2023, which also makes it the company's largest hedge fund shareholder. Cumulatively, 36 of the 910 hedge fund portfolios analyzed by Insider Monkey had invested in the firm during the same time period.
6. Mastercard Incorporated (NYSE:MA)
Berkshire Hathaway's Q2 2023 Investment: $1.5 billion
Latest P/E Ratio: 39.14
Mastercard Incorporated (NYSE:MA) is another financial technology firm that offers nearly the same products and services as Visa. A whopping 88% of its stock is owned by institutional investors, providing some stability to the share price but also making it vulnerable to large downward movements.
Insider Monkey scanned 910 hedge funds for their Q2 2023 shareholdings to discover that 139 had held a stake in Mastercard Incorporated (NYSE:MA). Payment card companies are a long time favorite of Warren Buffett, as he was one of the first to realize the potential of American Express in the late 1900s. Charles Akre's Akre Capital Management is Mastercard Incorporated (NYSE:MA)'s largest shareholder through its $1.5 billion investment.
Amazon.com, Inc. (NASDAQ:AMZN), Mastercard Incorporated (NYSE:MA), Markel Group Inc. (NYSE:MKL), and StoneCo Ltd. (NASDAQ:STNE) are some growth stocks that Warren Buffett has invested in.
Click to continue reading and see Warren Buffett's 5 Growth Stock Picks.
Disclosure: None. Warren Buffett's 11 Growth Stock Picks is originally published on Insider Monkey.