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Warren Buffett is sort of an investing legend here at The Motley Fool. He began his investing career with less than $10,000 more than six decades ago and now has a fortune that exceeds $64 billion, according to Forbes. Buffett has worked his magic with nothing more than patience and a keen eye for high-quality, brand-name stocks that have clear competitive advantages within their industries.
Currently within Buffett's investment portfolio at Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) you'll find over three dozen different stocks that the Oracle of Omaha favors. But the big question is which of these three dozen-plus stocks look the most attractive right now. That's a question we posed to three of our Foolish contributors. Here's what they had to say when asked which Buffett stock they'd suggest readers consider buying in August.
An inevitable winner in the payments space
Steve Symington: I think now is a great time for long-term investors to consider picking up shares of MasterCard (NYSE: MA).
For perspective, Berkshire's most recent filings show that the company held just over 4.9 million shares of the payments-technology company worth a little over $470 million as of this writing -- a relatively modest stake, by Berkshire's standards, and more than likely indicating that one of Buffett's younger investing managers, Todd Combs or Ted Weschler, is behind the original purchase. But given their steadily increasing responsibilities over the past several years, we can also be sure that Buffett trusts their judgment in picking solid stocks for his company to own over the long term.
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And I'm convinced that MasterCard validated Buffett's holding when it releasedbetter-than-expected second-quarter resultslate last week, helping ease investors' fears for its ability to weather recent economic and political uncertainty. MasterCard's revenue grew 12.7% year over year last quarter, to $2.7 billion, led by a 14% increase in processed transactions, and 9% growth in worldwide purchase volume at constant currency, to $897 billion. MasterCard also achieved 10% growth in adjusted net income, to $1.06 billion, and 12.9% growth in adjusted net income per share thanks to its ambitious share-repurchase initiatives.
Perhaps most encouraging, MasterCard CEO Ajay Banga noted that while it's still too early to estimate the impact of the Brexit vote on his company's results, the U.S. economy is holding steady, while much of Europe was showing signs of improvement before that vote. And MasterCard achieved its solid growth in spite of a prolonged slowdown in China, a stubborn recovery in Australia, and obvious economic turmoil in both Brazil and Venezuela.
So regardless of what the world economy throws at MasterCard in the future, I think patient investors can rest easy knowing the company is well positioned to continue capitalizing on the long-term shift to electronic payments.
Powering your portfolio to the next level
Sean Williams: The Berkshire stock I believe investors would be wise to focus on in August is midstream giant Kinder Morgan (NYSE: KMI).
Kinder Morgan has had its fair share of issues over the past two years, with natural gas prices tumbling to a 17-year low at one point, and coal prices dropping precipitously. Weakened natural gas prices could potentially hurt its ability to garner new pipeline contracts from drillers. Likewise, weak coal prices put a number of coal producers out of business, which in turn hurt Kinder Morgan's terminal business, which stores and transloads a number of products, including coal, natural gas, and liquefied natural gas. These concerns forced management to slash its dividend to $0.125 per quarter from what had been $0.51 fairly recently.
Image source: Kinder Morgan.
However, I believe there's ample opportunity to be had with Kinder Morgan well off its high. For starters, midstream companies are where the big dollars are flowing in the energy sector. Back in 2009, the INGAA Foundation estimated that midstream investment would need to total $133 billion to $210 billion between 2010 and 2030 just to meet growing energy demands in North America.
More importantly, Kinder Morgan's balance sheet is improving, and long-term trends remain on its side. Kinder Morgan recently announced the sale of a 50% stake in its Southern Natural Gas pipeline system to Southern Companyfor $1.47 billion in cash, and the assumption of $1.2 billion in debt. Although this move reduces Kinder's EBITDA, it has a bigger impact on reducing its debt. Management now expects to end the year at 5.3 times debt-to-EBITDA, which is below its initial year-end target. After rapidly expanding for years, Kinder Morgan is redeploying its capital to only its top-margin projects.
Additionally, the Energy Information Administration predicts that natural gas production from shale gas and tight oil plays could nearly double between 2015 and 2040 to 29 trillion cubic feet (tcf) from 15 tcf. That bodes well for midstream companies such as Kinder Morgan, which have a tendency to lock their customers into long-term deals.
Sporting a 2.5% yield, this Buffett stock looks ripe for the picking.
This financial powerhouse is primed for growth
Brian Feroldi: One stock you might be surprised to see in Berkshire Hathaway's portfolio is Visa (NYSE: V), the global payment processing giant.
Buffett (or, more likely, one of his investing lieutenants) recently added to Berkshire's small position in Visa, and it's not hard to figure out why. Visa holds a dominant position in an important and growing market, throws off huge amounts of cash flow, and has a history of treating shareholders well.
Image source: Flickr user Hakan Dahlstrom.
Visa's business model is to earn a small fee off every transaction that occurs on its network. With billions of Visa branded cards out there, those small fees add up fast. Total revenue is expected to exceed $15 billion for all of 2016, up more than 8% over last year despite currency headwinds.
Looking ahead, there are plenty of reasons to believe that Visa will be able to grow its profits by double digits over the long term. Currently, 85% of global transactions still take place using cash or check. Since electronic-payment methods offer consumers speed, convenience, and security, Visa should greatly benefit as that number slowly drops.
While investors watch the growth story play out, the company is also buying back billions in its own stock each year. That's helping to slowly bring down its share count and turbocharge its earnings-per-share growth.
In all,Visa looks poised for great growth over the next few decades, so it's no wonder Buffett is a fan of the business. With shares trading for under 24 times next year's earnings estimates, right now is a great time to take a position in this long-term winner.
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Brian Feroldi owns shares of Kinder Morgan, MasterCard, and Visa. Brian Feroldi has the following options: short January 2018 $30 puts on Kinder Morgan, short January 2018 $35 puts on Kinder Morgan, long January 2017 $35 calls on Kinder Morgan, and short January 2017 $35 puts on Kinder Morgan. Sean Williams has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned.
The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Kinder Morgan, MasterCard, and Visa. It also recommends Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.