Warren Buffett is by far the most well-known investor and has a history of finding solid picks that do great in the long run. It’s not that he has a crystal ball, instead, he doesn’t fall victim to near-term swings and holds his bets for the long run. And most of the time, his faith proves right and the strategy pays off. Buffett significantly invested in Coca-Cola(NYSE:KO) all the way back in 1988 and he turned his $1.3 billion cost basis since then into around $25 billion. Apple(NASDAQ:AAPL) is his largest position and he began purchasing shares in 2016 and turned his $31 billion cost basis into $135 billion in just eight years.
There are countless other success stories of Warren Buffett’s success stories. However, you should remember that no one has a crystal ball. Warren Buffett also holds some stocks that have not paid off as well so far. That said, the fact that he holds them does mean that he still sees them paying off in the long run. Buying now could give you a better entry into these stocks than even Warren Buffett before they (potentially) deliver solid gains.
Let’s take a look at three of them:
Nu Holdings (NYSE:NU) is a financial services company in Brazil and is now the largest financial institution in terms of active customers. It has 100 million customers, of which the vast majority are in Brazil. However, there is a lot of growth potential here as 43% of the country’s adult population does not use it and it can repeat its success story in other countries in Latin America.
Warren Buffett invested in Nu Holdings since its IPO in late 2021. He bought around 107 million shares at an average price of $9.82 per share. And much like most tech startups that went public around that time, NU stock plunged the following year and traded around $4 until mid-2023 when it finally started to pick up momentum again. Buffett was right in the long run and took some profits in Q3 2024 by selling 20.7 million shares. This is a gain of around 37%. He was right again since Nu stock declined in the fourth quarter.
Today, NU trades at $11.5 and is down 24.4% from its peak in November 2024. I think this is a good opportunity to get in on the action again since it is one of the fastest-growing companies right now. Q3 revenue grew 56.6% year-over-year to $2.9 billion and the net interest income grew 63% to $1.7 billion. For all of 2024, analysts see 47% revenue growth and 92% EPS growth. Paying 28 times forward earnings and 4.7 times forward sales seems like a bargain compared to what you pay for other software companies with far inferior growth metrics. It also has $12.3 billion in cash versus just $1.5 billion in debt.
Analysts see 35% upside potential here in the next year.
Diageo (NYSE:DEO) doesn’t have as hot fundamentals as Nu Holdings does, but I think there’s a good chance of it making a comeback from its current woes. It is a British producer of alcoholic beverages. Buffett first invested in Guinness — which later merged with Grand Metropolitan to form Diageo — in 1991. This was his first significant investment in a non-U.S. company and saw Guinness similar to Coca-Cola (NYSE:KO). However, he ended up selling his entire stake here before the merger even happened.
He later bought back into DEO in Q1 2023 by buying 277,750 shares worth $40.2 million. It has since been one of Buffett’s worst-performing investments in the past few months and is down 46% from its 2021 peak.
If you look at the trends, though, it should be clear that Diageo's decline has started to slow down. It recently moved above its 200-day moving average (in the U.K. market) and underlying financials are expected to recover starting in the next fiscal year.
In the meantime, you can sit on its 3.5% dividend. It is trading below even 2020 lows, so I see little downside risk.
Kraft Heinz (NASDAQ:KHC) has all the hallmarks of a typical Warren Buffett stock: a well-known product with sticky demand, which in turn translates to a great moat that gives the company pricing power down the line. Unfortunately, not every investment Buffett makes is a success story. KHC has been dubbed as one of Buffett’s worst investments.
Buffett invested in Heinz in 2013 and two years later, Heinz merged with Kraft Foods. He bought 326 million shares during this merger at a cost of around $24.6 billion. He has held on to that stake, which is now worth $11.4 billion.
Warren Buffett did admit that he initially overpaid for the company, but I think him holding on is a good hint that he still thinks KHC can deliver in the long run. The stock has declined 20% in the past year and is now back to where it was five years ago. If you combine the 5.47% dividend yield it pays, the limited downside risk, and the 20% consensus upside, I think it is a very good deal right now.