We recently compiled a list of the 12 best long-term stocks to buy according to Warren Buffett. In this article, we are going to take a look at where Mastercard Incorporated (NYSE:MA) stands against the other long-term stocks to buy according to Warren Buffett.
Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investment career that began in 1965, the ‘Oracle of Omaha’ has averaged annual returns of 19.8%, trumping a gain of 9.9% for the S&P 500 over the same period.
The market-beating performance has propelled Buffett to the top of the charts as one of Wall Street’s most revered and followed investors. His investment portfolio is always tracked as investors scan for potential market opportunities.
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Likewise, Buffett is one of the most successful investors in Wall Street’s history, having accumulated a fortune of $138 billion. His total assets might have been significantly higher if he hadn’t donated large sums to different charitable causes.
Market participants have always applauded his disciplined approach, which entails a long-term perspective. His investment firm has become the latest company to cross the $1 trillion mark on market cap, underlining Buffett’s impressive stock-picking skills. According to Cathy Seifert, Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to Buffet’s investment firm’s financial strength and franchise value.
Buffett’s investment strategy has remained constant throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett seeks out companies with a lasting edge over competitors, like a well-established brand, high barriers to entry, and a large and loyal customer base, and he buys into them at a price that ensures a safety margin.
Likewise, the billionaire investor is well-known for his cautious stance on investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors such as retail, insurance, and finance. He is recognized for his commitment to long-term investments, holding onto companies for extended periods, and steering clear of frequent trading. This strategy enables him to benefit from the compound interest effect and allows the companies he invests in to mature and produce significant profits.
Buffett’s cautious approach is evidenced by the fact that his investment firm had over $180 billion in cash as of the end of the first quarter. The cash reserves were expected to swell to over $270 billion as of the end of June.
The cash reserves have been building up as the billionaire investor only invests in finding attractive deals with eye-popping returns. In a 2023 letter to shareholders, Buffett reiterated he did not see the possibility of eye-popping performance.
Buffett has consistently included dividend stocks in his portfolio, which is a strategy that has effectively generated consistent passive income. This year alone, his investments are projected to generate around $6 billion in dividend earnings.
Nevertheless, Buffett has also been in defensive mode in recent months, opting to reduce stakes in some companies. He has trimmed holdings by up to half in some tech giants, concerned by valuations getting out of hand after a year of gains fuelled by the artificial intelligence frenzy.
While valuations have gotten out of hand going by the blockbuster gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its monetary easing spree with a cut of interest rates, equity is poised to receive a significant boost.
The best long-term stocks to buy, according to Warren Buffett, are companies well poised to benefit from interest rates dropping. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, generating more shareholder value.
Our Methodology
To compile our selection of the best long-term stocks to buy according to Warren Buffett, we began by analyzing Berkshire Hathaway’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock, as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett stakes in the companies.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A woman using a payment terminal at the checkout of a store showing payment products and solutions.
Mastercard Incorporated (NYSE:MA)
Warren Buffett’s First Major Purchase: 2011
Berkshire Hathaway’s Latest Investment Stake: $1.76 Billion
Number of Hedge Funds Holding Stakes as of Q2: 142
Mastercard Incorporated (NYSE:MA) is a financial services company that provides technology for processing transactions and other payment-related products and services. The company has established an expansion drive to bring over 1 billion people into the digital economy. In pursuit of this objective, the company has recently initiated numerous collaborations. In August, it introduced an Open Banking initiative designed to streamline lending processes by digitally verifying income and employment status.
Mastercard Incorporated (NYSE:MA) also unveiled a payment passkey service in India, enhancing security and accelerating the speed of payments. Additionally, the company u is pursuing new growth opportunities around cryptocurrencies by allowing people to send and receive crypto using Mastercard Crypto credentials
The payments company delivered solid second-quarter results as net revenues increased by 13% while adjusted earnings soared 24%. The growth was driven by robust consumer spending and growth in cross-border volume, supplemented by expansion in value-added services.
The robust economic foundations, a diversified business model supported by robust consumer spending, solid demand for enhanced services, and the ongoing transition to digital payment methods position Mastercard Incorporated (NYSE:MA) favorably in the market.
The company has always been one of the best long-term stocks to buy, according to Warren Buffett, owing to its impressive track record in rewarding investors. The company has paid dividends consistently for 19 years, affirming its ability to generate free cash flow. Its financial health is highlighted by its ability to cover interest payments with cash flows.
As of June 2024 end, 142 out of the 912 hedge funds part of Insider Monkey’s database were the firm’s shareholders. Mastercard Incorporated (NYSE:MA)’s largest hedge fund investor is Charles Akre’s Akre Capital Management due to its $1.78 billion stake.
Here’s what L1 Capital International Fund mentioned about Mastercard Incorporated (NYSE:MA) in its Q2 2024 investor letter:
“The share prices of Mastercard Incorporated (NYSE:MA) and Visa, both long term Fund investments, have both drifted down over recent months. There have been no dramatic developments, but there has been a general slight softening in the rate of growth of consumer spending in the U.S. and globally, a court decision rejecting Mastercard and Visa’s proposed settlement of a long-lasting dispute with U.S. merchants as well as other modest adverse regulatory developments. We continue to view Mastercard and Visa as two of the highest quality businesses in the world, and both are well placed to continue to deliver attractive, risk adjusted returns to shareholders over time.”
Overall MA ranks 10th on our list of the best long-term stocks to buy according to Warren Buffett. While we acknowledge the potential of MA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MA, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
