Is it a no-brainer purchase after another great quarter?

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Investors like to look at something Berkshire Hathaway holdings in its public stock portfolio. Some of the largest holdings are well-known industry heavyweights including Apple, bank of AmericaAnd Coca-Cola.

But there is a much smaller position in a company that may even be more dominant than the names I just mentioned. Buffett owns $2.3 billion of this financial stockwhich make up less than 1% of Berkshire's entire portfolio.

After reporting another great quarter, is this company a no-brainer purchase?

Business as usual

The company I'm talking about is Visa (NYSE:V). In the three months ended March 31 (Q2 2024), it reported revenues of $8.8 billion and diluted earnings per share (EPS) of $2.29, figures that beat Wall Street estimates. Immediately after the announcement, shares rose 3%.

That turnover increased by 10% year on year. This was driven by Visa's active card base growing by 6%. Moreover, payment volume increased by 8% compared to the second quarter of 2023. Once again, cross-border volume showed notable strength.

What's remarkable is how solid Visa's results remain in the face of what many consider an uncertain macro environment. In theory, higher interest rates, inflationary pressures and the fear of a recession should discourage higher spending. Visa Chief Financial Officer Chris Suh commented Profit figures second quarter 2024 that executives are seeing “relatively stable volumes in the US across credit and debit.”

We can't talk about Visa without mentioning how profitable it is. In the second quarter, operating income was $5.4 billion, which translates to 61% of sales. Investors would be hard-pressed to find companies that can beat this benchmark. It highlights how lucrative running a payment network at this scale can be. The technological infrastructure to process transactions has already been developed, meaning that every transaction carries high margins.

This setup helps explain why Visa generated $7.6 billion in revenue free cash flow through the first six months of fiscal 2024. Capital expenditures during this period were only $548 million, as only modest expenditures are required to maintain and expand the business. As a result, management can return billions of dollars to shareholders every quarter through dividends and buybacks.

Rewarding shareholders

Over the past decade, Visa stock has beaten the market S&P500. The company has long been a winning investment for shareholders. Unsurprisingly, this is due to strong underlying fundamental performance, regardless of the economic situation we find ourselves in.

It should come as no surprise that a company as financially successful and competitively dominant as this one is trading at a premium valuation. The stock has a price-to-earnings (P/E) ratio of almost 31. That represents a discount to Visa's average price/earnings over the last ten years, but it is much more expensive than the price/earnings ratio of the S&P 500. . This could deter value-oriented investors.

According to average analyst estimates, Visa's revenues and diluted earnings per share are expected to increase at a compound annual rate of 10.2% and 15.2%, respectively, between fiscal 2023 and fiscal 2026. These gains would be in line with the results of the past ten years. .

It's not hard to believe that Visa will achieve these goals, especially considering how much it dominates the card industry. Moreover, there is still a huge expansion opportunity for cashless transactions to gain a share of cash and paper-based payment methods.

Because this is such a high-quality company with sustainable growth behind it, paying a relative premium to own the shares is an easy argument. Visa may be a forever stock that you can buy and hold for a very long time. I believe Buffett feels the same way.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Bank of America, Berkshire Hathaway and Visa. The Motley Fool has one disclosure policy.

Warren Buffett Owns More Than $2 Billion of These Forever Stocks: Is It a No-Brainer Buy After Another Great Quarter? was originally published by The Motley Fool

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