Nasdaq Bear Market: 3 Warren Buffett Growth Stocks to Buy Right Now

OArren Buffett may be best known as a value investor, but the Berkshire Hathaway The CEO has actually warmed to growth stocks over the past decade. The Nasdaq Compound The index is now trading down around 26% year-to-date, suggesting that risk-tolerant investors have the opportunity to invest in promising companies at very favorable prices compared to their potential. long-term.

With that in mind, a panel of Motley Fool contributors identified three growth stocks in Berkshire Hathaway’s portfolio that stand out as attractive buys on the heels of recent selloffs. Read on to see why they think Snowflake (NYSE: SNOW), Chevron (NYSE: CVX)and Bank of America (NYSE: BAC) are downed stocks worth betting on.

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Dominate future-facing service categories

keith noonan (Snowflake): Although Snowflake is not part of the Nasdaq Composite, the data services company has certainly participated in the broader withdrawal of growth stocks this has played a big role in shaping the drop in the tech-heavy index this year. Snowflake stock has fallen about 53% year-to-date and 61% from its 2021 peak, and is one of the worst performing stocks held by Berkshire since the start of the year. last year.

Even with the significant pullback in valuation, the stock still stands out as one of the most growth-dependent stocks in Berkshire Hathaway’s portfolio. Although the company is showing positive free cash flow, it is still not profitable and is currently valued at around 25 times the expected sales for this year. So why did Buffett and his team decide to invest in this software stock so far removed from the kind of valuation profile Berkshire is best known for?

In some ways, Snowflake looked like an almost baffling buy for the investment conglomerate, but it makes a whole lot more sense alongside another yardstick the Oracle of Omaha used to gauge winners. Buffett likes a company with a good moat, and the data services company appears to be in the early stages of establishing powerful competitive advantages in service categories that will only become increasingly essential.

Snowflake provides data warehousing and marketplace services that enable businesses and institutions to combine, buy, and sell valuable information. With energy prices near record highs, people aren’t saying “data is the new oil” as often as they used to, but there’s a good chance the sentiment will return to fashion before too long. long time. Using data analytics to build strategy and deliver services has never been more critical for large organizations, and Snowflake is building an ecosystem that helps its customers get the full picture.

Chevron’s best days are ahead of it

Daniel Foelber (Chevron): Chevron has gone from a small stake in the Berkshire portfolio to its fourth public equity stake, and for good reason. Chevron has many share value qualities that Buffett tends to look for. Its valuation is reasonable. It is an industry leading company with various sources of income. And it has a decades-long track record of paying and increasing its dividend with a forward dividend yield of 4%.

The integrated oil and gas major may not be the best performer as a growth stock. However, the global imbalance between supply and demand has changed dramatically for the oil and gas industry over the past two years. Oil and gas could gradually lose their percentage share in the global energy mix. But it still underpins the energy that powers residential users and the transportation, industrial and power generation industries. Companies like Chevron have a low cost of production and a strong balance sheet, which gives them a big advantage in persevering through past downturns and profiting from the upside when oil and gas prices rise.

It’s boom time in the oil and gas industry right now. As the saying goes, a rising tide lifts all ships. But when times get tough and the tide goes out, a lot of weaker players hang out to dry. When discussing long-term investments in a cyclical industry like oil and gas, it is important to select companies that will not boom and bust at the pace of the broader market, but will have rather resistance. Given Chevron’s holdings in the West Texas Permian Basin, its growing liquefied natural gas (LNG) portfolio, and its investments in renewable and alternative energy, Chevron is the kind of company that could continue to grow for decades, even as economies evolve into weaker economies. carbon fuels.

Too low for all the wrong reasons

James Brumley (Bank of America): Of all the current Buffett picks capable of outpacing current (and possibly future) Nasdaq weakness, I like Bank of America.

Yes, it is in a banking business that is well positioned to bear the brunt of any recession. Not only does economic weakness reduce interest in borrowing, investing, and fundraising, but it also tends to pose problems for banks’ loan portfolios. This is because businesses and consumers struggle to repay borrowed money when profits or revenues dry up.

The thing is that after last month’s 16% drop with Bank of America shares leaving it more than 30% below the highs reached earlier this year, most of this potential problem is already priced into the stock — and more. The big pullback also pushed the dividend yield up to 2.7%, and while I understand investors are worried that an economic headwind could jeopardize Bank of America’s ability to fully fund its dividend, I don’t agree worried. The current annualized payout per share of $0.84 is just a small fraction of the $3.33 per share that analysts expect the bank to earn this year, en route to $3.93 per share l ‘next year. Even if the company misses those estimates by a country mile, there’s still plenty of cash left to pay the dividend and there’s still a little something left.

I still don’t think that’s going to be a problem. Even in what could turn into tougher times ahead, higher interest rates will mean higher profit margins on lending business that Bank of America is likely to earn in the future. The only thing you have to do is be like Buffett and keep in mind that this is a long-term stake.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has no position in the stocks mentioned. James Brumley has no position in the stocks mentioned. keith noonan has no position in the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Snowflake Inc. The Motley Fool recommends the following options: long January 2023 $200 on Berkshire Hathaway (B shares), short January 2023 $200 on Berkshire Hathaway (shares B), and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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