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By Courtney Carlsen, Fool.com
Warren Buffett is one of the world's most-followed investors. Since becoming CEO of Berkshire Hathaway in 1965, Buffett and his team have delivered 20% average annualized returns.
Buffett is known for his disciplined, patient approach to investing. He seeks to invest in high-quality companies at reasonable prices and hold on to them for the long haul. His proven ability to pick winners lends credence to the notion that Berkshire Hathaway's holdings provide potential investing ideas for others to mimic.
Here are three Buffett-backed stocks that could make an excellent addition to your portfolio today, and you can buy at least one share in all three for less than $1,000.
1. American Express: Trading around $242 a share
American Express (AXP) has long been a staple of Berkshire Hathaway's investment portfolio. The conglomerate first purchased shares in the early 1990s and has since held those shares for almost three decades, earning a 17x return and a consistent dividend.
What makes American Express stand out is its powerful brand, which attracts high-end customers to its credit card products. American Express has done an excellent job of creating a brand associated with luxury.
The company offers high-spending customer cards, like the invite-only Black Card, which reportedly requires customers to spend anywhere from half a million to a million dollars annually just to be considered. It also offers a Platinum Card for a $695 annual fee. Both cards offer perks for customers with expensive tastes, including rewards from high-end luxury brands, travel providers, and hotels.
Although it holds on to credit card loans, unlike pure payment processors Visa and Mastercard, its higher-end customer base should be well positioned to ride out whatever the economy throws at them and could better withstand an economic downturn should it come.
American Express is well positioned in the digital payments economy, and its high-end customer base should continue to spend alongside a growing economy, making it an excellent stock to add to your investment portfolio today.
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2. Moody's: Trading around $414 a share
Moody's (MCO) is one of the top credit rating agencies in the world. With a 32% market share of the U.S. credit rating market, only S&P Global has a larger market share at 50%.
Moody's has a recognizable brand and a strong foothold in the credit rating market, which can be hard for new entrants. It takes time for credit rating agencies to build trust among investors, and Moody's has had over a century to build a reputation for itself. Not only that, stringent regulations make the barriers to entry even higher.
The credit rating agency is an essential player in global financial markets, providing investors with crucial information about a company's riskiness and ability to repay its debt. With this economic moat, it's no wonder Buffett and his team at Berkshire have held Moody's since 2000.
Lackluster issuance volumes, especially among corporate borrowers, have weighed on Moody's in recent years. Over two years, its adjusted operating income from its Moody's Investors Services segment, which accounts for credit ratings revenue, fell 33%.
The good news for investors is that issuance volumes have been rising. In Q1, Moody's Investors Services adjusted operating income was $668 million, up 51% from the year before thanks to strong issuance volumes. The company should continue to benefit from pent-up demand for debt issuance, making it another excellent stock for the long haul.
3. Citigroup: Trading around $64 a share
Citigroup (C -1.16%), with its $1.68 trillion in total assets under management, is the fourth-largest bank in the U.S. and has a massive global footprint. The company provides banking services, wealth management, and investment banking to customers worldwide.
Despite its size and reach, Citigroup has struggled to keep pace with its peers on key profitability metrics over the past several years. One reason is that its sprawling business has been harder to manage, and CEO Jane Fraser is taking huge steps to improve the bank's profitability.
Since taking over in 2021, Fraser has laid out plans to improve Citigroup's efficiency and profitability. To accomplish this, the bank announced it was winding down or selling 14 consumer franchises, including a highly profitable business in Mexico. Through March, it had sold or wound down nine of its consumer franchises. It also said its Mexico consumer business was on track for a planned initial public offering (IPO) by 2025.
Buying Citigroup today is a bet that the bank can turn things around. The stock can be had for a cheap valuation, priced at a 25% discount to the bank's tangible book value. Peers like Wells Fargo and Bank of America are priced at a 65% and 57% premium, respectively, to tangible book value.
With the bank's turnaround underway, the stock's cheap valuation gives it excellent upside potential from here.
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