Whenever Warren Buffett makes a move, investors pay attention. The legendary investor and Berkshire Hathaway (NYSE:BRK-B) have been net sellers of stock recently, but their latest action has sparked interest. Berkshire has added to its position in Verisign (NASDAQ:VRSN), a lesser-known yet essential player in the tech world.
Key Takeaways
- Warren Buffett’s latest buy highlights Verisign, a low-cost company with a wide moat.
- Verisign remains undervalued, even after a recent government contract renewal.
- The stock has potential to grow further, despite regulatory uncertainties.
Verisign: A Quiet Giant in the Internet World
Verisign isn’t your typical flashy tech stock. Unlike the artificial intelligence (AI) plays dominating headlines, Verisign operates behind the scenes. Its core business? Managing and securing domain names, particularly the coveted “.com” domains. It’s an unassuming corner of the internet but one with incredible profitability.
After Berkshire’s latest buys, it now holds over 13 million shares, cementing its position as Verisign’s largest shareholder. The stock has climbed nearly 10% over the past month, fueled by optimism about its value and growth prospects. Despite this rally, it’s still trading nearly 20% below its late-2021 all-time highs.
What Makes Verisign Special?
Verisign’s economic moat is undeniably wide. It holds a near-monopoly in the domain registry space, a fact recently highlighted by U.S. Senator Elizabeth Warren. While this dominance has drawn scrutiny, it also underscores the firm’s pricing power and stability.
Domains like “.com” are the prime real estate of the internet, and companies are willing to pay a premium to secure their digital presence. As noted in the article, “The bigger risk would be cheaping out and letting a domain go back on the market.”
Is Verisign Undervalued?
At a trailing price-to-earnings (P/E) ratio of 23.9, Verisign looks inexpensive for a firm with such strong profitability and predictability. This value has not gone unnoticed. Analyst Rob Oliver from Baird recently upgraded Verisign to “outperform,” raising its price target from $200 to $250. His optimism stems from the company’s renewed contract with the National Telecommunications and Information Administration (NTIA) and growth opportunities in top-level domains.
Challenges and Risks
Regulatory pressure remains a key concern. Senator Warren’s focus on Verisign’s monopoly raises questions about potential government intervention. However, it’s too early to gauge the impact, if any, of these regulatory discussions.
For now, Buffett’s confidence suggests that the firm’s wide moat and steady cash flows outweigh these uncertainties.
Should You Buy Verisign Stock?
Buffett’s endorsement is a strong vote of confidence, but investors should weigh their options carefully. The stock offers a blend of stability and growth potential in an otherwise frothy market. Its predictable revenue stream, wide moat, and recent contract win make it an attractive long-term play.
However, the “Buffett premium” is worth noting. Stocks backed by Berkshire often see price surges following such announcements, making timing a key factor.
Final Thoughts
Verisign represents an underappreciated corner of the tech world, offering value in a market often driven by hype. With Buffett and analysts like Rob Oliver backing the stock, it’s worth keeping on your radar.
As we step into 2025, Verisign’s steady growth potential and wide moat make it a compelling choice for those seeking stability and value. If the stock market corrects, this could be a prime opportunity to scoop up shares of this “boring” yet highly profitable internet giant.
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