Investors often look to Warren Buffett for stock ideas and wisdom about the market, hoping to glean any insights they can from his decades of success as the longtime CEO of Berkshire Hathaway and his management of a $300 billion portfolio.
If you have $500 to spend right now, there are some good reasons to put that money toward two stocks in Buffett's portfolio: Amazon (AMZN -1.45%) and American Express (AXP -0.97%). Here's why.
1. Amazon
Amazon's stock belongs in nearly any investor's portfolio for a couple of good reasons. First, the company is a dominant force in the U.S. e-commerce space, with nearly 40% market share. To put that percentage in perspective, retail juggernaut Walmart has just 7.4% market share in U.S. e-commerce.
Image source: The Motley Fool.
That lead gives Amazon a huge advantage as e-commerce continues to expand. Its North American retail sales increased 11% in the third quarter (which ended Sept. 30) to $95.5 billion, and the company's total operating income jumped 55% to $15.3 billion.
In addition to Amazon's retail strength, the company benefits from its leading cloud computing position. Amazon Web Services (AWS) holds 31% of the cloud market, with rival Microsoft trailing with 20%. Cloud computing quickly became a focal point for investors as artificial intelligence (AI) has taken off, and cloud companies are poised to benefit.
Goldman Sachs estimates cloud computing will generate $2 trillion in revenue by 2030 because of AI. With Amazon already outpacing its cloud rivals, the company will likely benefit as AI spending increases.
Berkshire Hathaway bought Amazon in 2019 and owns 10 million shares, accounting for less than 1% of the company's investment portfolio. But don't think that small percentage is because Buffett isn't bullish on it.
It's more likely that he owns a small position because he was just too hesitant to buy it earlier. Buffett said at the 2017 Berkshire annual shareholders meeting that, "I was too dumb to realize what was going to happen."
Buying Amazon stock now could still prove to be a very smart move. It has a forward price-to-earnings ratio (P/E) of 36.9, and while that's not cheap, it's still priced relatively well considering the S&P 500's P/E is 30.9.
2. American Express
American Express may be a more traditional Buffett stock than Amazon because he tends to choose strong financial companies, and American Express easily fits the description.
The company's sales increased by 8% in the third quarter (which ended Sept. 30) to $16.6 billion, and diluted earnings per share rose 6% to $3.49. The growth was partly fueled by the focus on increasing the number of high-end clients, who are willing to pay annual fees for its cards.
The company added 3.3 million new cardholders in the quarter, and 80% of its new Gold Card sign-ups came from younger, more affluent customers. The company's strong third-quarter results spurred management to raise is full-year earnings guidance to $13.90 per share, up from $13.55, both at the midpoint.
Buffett first added American Express to the Berkshire portfolio in 1991, and it accounts for more than 15% of the total portfolio today.
With a forward P/E of just 20, the stock trades at a relative discount to the broader S&P 500's ratio of about 30.9. With the company clearly benefiting from additional cardholders, and earnings and revenue continuing to grow, this Buffett stock looks like a great buy right now.
