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The Best Buffett Stock to Invest $500 in Right Now

Source The Motley Fool

Warren Buffett is very selective about which companies he invests in. That's why investors should take note when he sticks by an investment for decades, even after the company grows immensely in value. Right now, one of Buffett's best stock picks is on sale. And so far, Buffett isn't selling a single share.

This is the perfect Buffett business

Buffett considers a wide variety of factors when deciding whether to invest in a particular business. One of the most important is what economists call an economic moat. An economic moat is a kind of competitive advantage that can endure for years, if not decades at a time.

When it comes to strong economic moats, few companies can match the power of Visa (NYSE: V). Just take a look at its market share figures. According to most metrics, Visa controls at least half of the U.S. credit card market. Just three companies -- Discover Financial Services, Mastercard, and American Express -- control the remainder. Suffice it to say that this is a highly consolidated market controlled by a handful of powerful competitors, Visa being by far the largest.

Merchants want to accept forms of payment that consumers can pay with. And consumers only want to carry around forms of payment that merchants will accept. It is this dynamic that has helped consolidate the payment industry in the U.S. -- a dynamic that only grows stronger over time. That's because Visa's dominant market share provides two critical benefits.

First, its network generates more data than its competitors combined considering more than half of credit transactions occur on its network. Second, Visa's business model is asset light, resulting in greater levels of profitability the more it scales. As the largest competitor, Visa can generate returns that the competition can't compete with. Over the last decade, Visa has dominated the competition when it comes to profitability, posting profit margins of nearly 55% last quarter.

With a strong market position supported by natural industry consolidation and the benefits of scale, Visa has accumulated an economic moat that most companies can only dream of.

V Profit Margin Chart

V Profit Margin data by YCharts

Is it too late to buy Visa stock?

Buffett first bought Visa shares back in 2011 at a price point of roughly $40 per share. More than a decade later, shares trade above the $270 mark. Is it too late to get involved? Absolutely not. Shares trade at just 29 times earnings -- roughly what the S&P 500 index as a whole trades at. In a nutshell, you're able to buy a long-term Buffett stock with an incredible economic moat and profitability levels for zero premium versus the overall market.

Just know it's not all roses. Last month, the U.S. Department of Justice announced an investigation into the company for anticompetitive practices. According to Politico, "The department accused Visa of a wide-ranging scheme stretching back as early as 2012 that it said artificially inflated the prices the payment company charged merchants and cut off competition from newer financial technology companies."

This isn't the first time Visa has been targeted by regulators. Over the last several decades, several lawsuits have been filed, but none have been able to knock it from its perch, though fines have put a temporary dent in financial results. So far, Buffett doesn't seem perturbed, with no change to his position since the news broke. There are macro risks to this stock, but at 29 times earnings, it's hard not to follow Buffett into this proven blue chip winner.

Should you invest $1,000 in Visa right now?

Before you buy stock in Visa, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Visa wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $765,523!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 7, 2024

American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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