One of Warren Buffett's most famous investing aphorisms is that it pays to "be fearful when others are greedy, and greedy when others are fearful." With a wide variety of risk factors prompting market turbulence lately, the Nasdaq Composite index squarely in correction territory, and the S&P 500 index dipping in and out of that zone, it's fair to say there's fear in the market.
While further volatile trading could occur in the near term, investing in stocks likely remains the single best method people can use for long-term wealth generation, and the Berkshire Hathaway stock portfolio stands as a good starting place for investors looking for stocks capable of delivering market-beating returns. And this trio of Motley Fool contributors thinks that long-term investors would be smart to buy these Buffett-backed stocks now.
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Apple has a great brand, robust profit margins, and a strong competitive advantage
Parkev Tatevosian: Investors have not had many opportunities to buy Apple (AAPL -1.21%) shares on a dip in the last few years. The tech giant has climbed to a market capitalization of over $2 trillion and made many shareholders wealthier along the way.
One of the most famous of those shareholders is Warren Buffett. Apple is now the largest holding in Berkshire Hathaway's stock portfolio. And who could blame him for holding onto that position? Apple's revenue has soared by over $200 billion in the last decade. More impressively, its operating income has grown from $55 billion in 2012 to $109 billion in 2021.
Apple achieves excellent performance through innovation. Time and again, it has introduced new products or newer versions of older products that consumers find they simply must have, and they're willing to pay premium prices for the privilege. For instance, the iPhone has been around for more than a decade now, and in its most recent quarter, which ended Dec. 25, Apple sold a whopping $71.6 billion worth of the newer versions.
Strong customer loyalty is undoubtedly one of the traits that Buffet likes in an investment, and Apple delivers that in abundance. It also generates robust profit margins from serving those customers. Of course, competitors will attempt to infringe on your territory when you have a business with these characteristics, and Apple has proven it can defend its competitive advantage by offering a host of compelling features that also make its ecosystem sticky, raising switching costs considerably.
As painful as this stock market correction may be, it has created an opportunity for investors to buy Apple stock at levels 12% below its high.
This Buffett bet on retail real estate is on sale
Jason Hall: E-commerce has certainly changed the retail landscape, and online shopping is likely to continue being a disruptive force. But at the same time, there are plenty of retail businesses in the brick-and-mortar world that are doing more than just surviving, including experiential retailers, fast-food and fast-casual dining operations, and retailers that use their physical store footprints as important elements in their omnichannel strategies.
Many of those companies -- particularly the ones that prefer to operate stand-alone physical locations -- don't really want to own the land or the buildings. Real estate is capital intensive, often requires taking on a lot of debt, and can make it harder to dedicate resources to their actual businesses.
Enter STORE Capital (STOR), which has a huge list of tenants it works with to source and manage their real estate locations. STORE Capital acquires the properties, then leases them back to their tenants under long-term contracts that also include property taxes and building maintenance. This has been a wonderful business for STORE Capital, which has grown its funds from operations by 189% and its dividend by 238% since its IPO.
But shares have fallen by more than 21% from their all-time high, turning a once-market-beating investment into an underperformer.
STOR Total Return Level data by YCharts
To paraphrase Buffett, I think that has created an opportunity for investors to get greedy and buy shares of this high-yielding dividend growth machine while others are fearful.
This beaten-down fintech player has big upside
Keith Noonan: StoneCo (STNE 0.89%) stands as one of the worst-performing stocks in the Berkshire Hathaway portfolio over the last year. Luckily for Buffett, it's a relatively small holding for his conglomerate, but the Brazilian fintech's valuation decline has been staggering.
StoneCo shares are down by roughly 90% from the peak they hit in February 2021, and there are good reasons why the market has reevaluated the stock. While the U.S. has seen inflation hit decades-long highs, the situation has been even worse in Brazil, and the Latin American country's economy has been experiencing prolonged negative impacts from the coronavirus pandemic.
Making matters even worse, Brazil has implemented new regulatory standards for the lending and credit industries in response to the challenging macroeconomic backdrop. These have caused StoneCo's lending business to incur substantial losses, and it has suspended lending to small and medium-sized businesses in response.
The last year has delivered a whirlwind of bad news for StoneCo shareholders, but it doesn't look like the company's long-term growth engine has been completely derailed. Despite the uncertain outlook for its credit business, its payment-processing services for business customers have continued to see encouraging adoption and growth in total payment volume.
What's more, StoneCo's big sell-off means that the stock now trades in value territory for investors who are willing to tolerate bumpy performance in the near term while waiting for it to deliver on its potential. Its market capitalization now sits at roughly $2.8 billion, and it trades at approximately 1.8 times this year's expected sales and 23 times expected earnings. StoneCo's near-term earnings outlook has admittedly taken a big hit, but the tough conditions appear to have created a worthwhile buying opportunity for long-term investors.
