Warren Buffett is undoubtedly one of the greatest buy-and-hold investors in history. When picking stocks, he looks for firms with a durable competitive advantage (or moat), healthy cash flows, and longevity.
One stock that ticks all these boxes is payments processor Visa (NYSE:V). Buffett’s company, Berkshire Hathaway, today has a stake in Visa worth approximately $2.2bn (or 0.67% of its investment portfolio).
Here’s why I’d buy the stock today and hold it for at least a decade.
A massive moat
Visa operates a global card payments network connecting merchants and consumers through their banks and financial institutions. It earns a fee every time it handles a transaction flowing through its network.
In the firm’s fiscal 2023 (which ended 30 September), its network enabled $15trn in total volume from 276bn transactions. There are 4.3bn Visa cards globally with over 130m merchant locations accepting them.
These mind-boggling figures saw the company’s annual revenue grow to $32.7bn, up 11.4% from the year before. Net profit came in at a cool $18.3bn.
Visa’s formidable moat is built on its enormous scale, trusted reputation for reliability and security, and network effects, where the value of the service increases as more people use it.
This is a cash machine
Given that its network is simply moving data around, Visa has low capital expenditures. This means it generates buckets of free cash flow. Last year, that was to the tune of nearly $20bn.
That translates into an incredible 60% free cash flow margin. This indicates that for every £1 of revenue generated, the company retains 60p as free cash after covering operating expenses and capital expenditures.
Warren Buffett also loves growing dividends and Visa’s financial prowess has supported these too.
Risk
Now, one issue I’d highlight here is regulation. The EU has long been working on reforms to try and open up the payments market to smaller fintechs that offer rival services.
This may one day threaten Visa’s dominance, though most fintechs today still partner with the payments giant rather than taking it on.
Another thing prospective investors might worry about is Visa’s future growth. After all, the company is already a global giant with a market cap of $553bn.
How much more growth is left? It’s a fair question.
The future
Well, I’d say easily enough to make it a larger business in future. As digital and contactless payments increase globally, including across borders, Visa is automatically set to benefit.
Indeed, many businesses (including most airlines) don’t accept cash these days, thereby compelling consumers to use cards.
Moreover, the number of unbanked adults globally in 2021 was around 1.7bn, according to the World Bank. This represents a vast potential customer base for Visa as these individuals gain access to financial services and start using cards.
I think the firm could even keep lowering its fees to appease regulators and still be a long-term winner due to the higher levels of payment volume.
Finally, the stock’s forward price-to-earnings multiple (26.5) is lower than it has been for many years. It’s not overvalued, in my opinion.
Created at TradingView
As the world moves further away from cash, Visa’s transaction volume should only grow over time.
So if I wasn’t already a shareholder, I’d invest today for the long run.
The post 1 unstoppable Warren Buffett stock I’d buy in 2024 and hold for a decade appeared first on The Motley Fool UK.
Should you buy Visa now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
Here’s why the FTSE 100 is still my top choice for dividend income
2 stocks I wouldn’t touch with a bargepole in today’s stock market!
Here’s how I could make a £3,673 monthly passive income with UK stocks
8%+ dividend yields! 3 FTSE 250 shares for investors to consider buying in April
2 FTSE 100 retirement shares to consider now
Ben McPoland has positions in Visa. The Motley Fool UK has recommended Visa. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
