Insights

2 Surefire Warren Buffett Stocks That Are Screaming Buys in August

It’s always a newsmaker when Berkshire Hathaway files its quarterly 13F form to the Securities and Exchange Commission, detailing the company’s equity holdings for the most recent quarter. That’s because its chairman and CEO, Warren Buffett, is one of the greatest investors of all time, and he’s still one of the most influential voices in the financial world.

But you don’t need to wait when it comes to your own portfolio. Buffett buys for the long term, and the stocks that are already in his portfolio can be a great starting place if you’re looking for ideas yourself. So don’t put off your research till Berkshire’s second-quarter 13F comes out this month. Here are two Buffett holdings that look like screaming buys as we start August: Bank of America (NYSE: BAC) and Visa (NYSE: V).

1. Bank of America

Bank of America is Buffett’s second-largest holding, accounting for roughly one-tenth of the portfolio at recent prices. Buffett has long shown an affinity for financial stocks — and bank stocks in particular — and there is none he likes more than Bank of America. 

There’s a lot to like about Bank of America right now, as its recent second-quarter earnings showed. The bank saw revenue increase 6% to $22.7 billion, boosted by a surge in net interest income, which climbed 22%. This was due to higher interest rates, as the Federal Reserve has been steadily increasing the benchmark federal funds rate to combat inflation. Last week, the Fed boosted rates another three-quarters of a percentage point to the 2.25%-to-2.5% range. This is good news for Bank of America, because it makes a good portion of its income on interest paid on loans.

On the other side of the equation, loan activity remains robust, as loan balances were up 12% year-over-year to $1 trillion — the bank’s fastest quarterly growth in years. The outlook for loan growth remains good, as the bank is on pace for mid- to high-single-digit loan growth in 2022, according to CFO Alastair Borthwick on the second-quarter earnings call. And with rates on the rise, even with modest loan growth, Borthwick expects net interest income (NII) to rise $1 billion over each of the next two quarters.

With a forward price-to-earnings (P/E) of just under 10, and a price-to-book (P/B) ratio of just over 1, Bank of America is pretty cheap right now.

2. Visa

Visa is a smaller position in Buffett’s portfolio, representing about 0.5% of assets. But the world’s largest credit card processor has been remarkably resilient through this bear market, down just 2% this year at Friday’s prices. And as one of only two major processing networks (Mastercard, another Buffett holding, is the other), it enjoys a huge competitive advantage. Its business model is asset-light and relies on transaction fees, which allows it to generate huge margins and lots of cash flow.

While the U.S. gross domestic product (GDP) declined in the second quarter by 0.9%, signaling a potential recession, Visa has not felt the effects. In its quarter ended June 30, Visa posted a 19% year-over-year increase in revenue to $7.3 billion, and a 32% jump in net income to $3.4 billion. The revenue was fueled by a 12% increase in payment volume and a 40% rise in cross-border volume. Cross-border volume was the highest since before the pandemic in 2019, signaling a return in travel spending.

Despite the economic slowdown, Visa CFO Vasant Prabhu said on the fiscal third-quarter earnings call that the company is “seeing no evidence of a pullback in consumer spending” for its fiscal fourth quarter. 

One factor to watch, however, is potential legislation out of Washington that would allow merchants to process Visa and Mastercard transactions on other networks as a way to increase competition and keep down fees. Nothing has been introduced as of yet, but the Wall Street Journal reported that Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) were preparing a bill.

Visa has shown its resiliency through this difficult period for the economy and markets, and is poised for future growth when the economy turns the corner. These are two Warren Buffett stocks that look like strong buys as we head into August. 

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares), Mastercard, and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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