Warren Buffett is the biggest investor of our time and when he deciding to buy cheap stocks, it’s worth finding out why. Buffett is famous for his focus on value stocks, companies that trade at relatively low valuations relative to their earnings and long-term growth potential.
Buffett and his team are increasingly investing in growing companies that are making great strides in their industry, often with their price appreciation on the stock market. Two shares bought by Buffett deserve attention: the first is Costco Wholesale, a defensive retailer with a perfect business model for these uncertain times, the second is StoneCo, a fintech based in Brazil with ample room for expansion in its market.
Cheap stocks to buy: Costco Wholesale
Berkshire Hathaway, Warren Buffet’s holding company, bought 24 million shares of Costco in 2000. After reducing its initial position, Berkshire now owns 4.3 million shares, with a stake of approximately 3% of the capital. Compared to current values, Costco’s shares (NASDAQ: COST) is up nearly 1,100% from Buffett’s entry level of $ 28.62 per share.
The company is poised for continued growth thanks to its defensive consumer business model and customer loyalty. Costco passes the savings on to customers, eliminating overheads and keeping operations as lean as possible. Although consumers have to pay an annual membership fee to shop at Costco warehouses, they can benefit from huge savings if they buy items in bulk.
The strategy is working, so much so that in the fiscal third quarter Cost sales increased 7% to a total of $ 36.451 billion, while the membership renewal rate stood at 91% in the United States and Canada. Costco’s subscription renewal rate is a key metric because, once consumers pay for a subscription, they are incentivized to maximize their purchases at Costco, increasing sales in the same store.
Cheap stocks to buy: StoneCo
StoneCo provides financial technology solutions to online retailers in Brazil, an e-commerce market that is expected to expand at a compound annual rate of 7.5% through 2024. Buffett bought shares of StoneCo (NASDAQ: STNE) in October 2019: from then they roughly doubled their value. StoneCo is poised for great success thanks to its huge market opportunity and innovative business model.
According to McKinsey, 47% of payment transactions in Brazil are made in cash and some 60 million people do not deposit in the bank, leaving ample room for StoneCo to compete for market share as the country’s financial system modernizes.
To compete in a country where face-to-face interactions reign supreme, StoneCo has invested in a series of physical locations, called Hubs, which offer service, sales and operations teams that can tailor solutions to local customer needs.