A small position in Berkshire’s portfolio has crushed the S&P 500 in the past 12 months.
This dominant business continues to report solid growth and rakes in tremendous profits.
The shares rarely go on sale, but investors might be interested in dollar-cost averaging over time.
Berkshire Hathaway, the huge conglomerate that boasts legendary investor Warren Buffett as its chief executive officer, owns dozens of individual stocks in its public equities portfolio. There's one dominant business that investors should pay attention to, even though it represents just 1% of the value of Berkshire's holdings.
Its shares are up 27% during the past 12 months (as of May 1), which is significantly higher than the 11% rise of the S&P 500 index (SNPINDEX: ^GSPC) over that same time period. There's a lot to appreciate about this company because it's clearly doing something right.
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Continue reading to learn more about the business and whether this financial stock should be in your portfolio.
Another solid quarter
Tariffs and trade policies are getting all the attention these days. Consumers are worried, causing investors to adopt a cautious outlook. Regardless of the backdrop, Visa(NYSE: V) continues to post solid financial results.
During Q2 2025 (ended March 31), Visa's revenue increased 9% to $9.6 billion. This was driven by an 8% jump in payment volume, which totaled a whopping $3.9 trillion in the three-month period. This makes Visa one of the largest payment networks in the world.
Listening to the management team, you wouldn't be able to tell that people are scared about the direction of the economy. "Consumer spending remained resilient, even with macroeconomic uncertainty," said Chief Executive Officer Ryan McInerney.
Superior business qualities
The world is moving away from cash and paper-based transactions to electronic payment methods. This long-running secular trend will likely drive growth for Visa. Consumers and merchants both appreciate the convenience and security that credit and debit cards provide.
This setup allows Visa to benefit, or at least be partly insulated from, the impacts of inflation. When consumers have to pay more, it means the business collects more revenue from transaction fees.
On the other hand, being dependent on spending behavior can introduce downside should economic conditions soften. But because the economy will grow over the long term, Visa is in a favorable position to keep benefiting.
The company's profitability is unbelievable. On that $9.6 billion in net revenue generated last quarter, $4.6 billion flowed down to the bottom line as net income, translating to an exceptional 48% margin. Running a scaled payment platform that requires minimal capital expenditures and where each additional transaction carries virtually zero cost supports a very lucrative model.
Visa has an extremely wide competitive moat, something Buffett definitely appreciates, that's supported by a powerful network effect. There are more than 150 million merchants plugged into the network because there are 4.8 billion active cards across the globe. More merchants add more places for consumers to spend, and more cardholders means merchants benefit from a bigger customer base.
By being so enmeshed in the global economy and facilitating the movement of money, Visa is largely protected from a competitive standpoint. Unless a new payment network is introduced that is 10 times better, it's hard to envision the business being disrupted anytime soon.
Not a bargain
Visa's impressive financial performance isn't a secret. The company has a $660 billion market cap, so clearly the market is aware of how fantastic this enterprise is. This rarely presents opportunities to buy the stock on the dip because it usually doesn't go on sale at a bargain valuation.
As of this writing, the shares trade at a price-to-earnings ratio (P/E) of more than 34, which is in line with the trailing five-year and 10-year average multiples. A valid argument can be made that the stock is fully valued.
This doesn't mean investors should sit around idly. Visa is undoubtedly one of the world's elite companies and can make sense for investors looking to own a stable, resilient, and competitively advantaged business in their portfolios, especially during times like now. Maybe the best course of action is to dollar-cost average into the stock over the next several months.
Should you invest $1,000 in Visa right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Visa. The Motley Fool has a disclosure policy.
