The Best Warren Buffett Stocks to Buy : The S&P 500 is near its all-time high as we enter the second half of 2024, but not all stocks are looking expensive. Most of the market's gains have been fueled by technology stocks, especially the mega-cap companies that have large AI operations.
However, legendary investor Warren Buffett is largely focused on value stocks when it comes to Berkshire Hathaway's (BRK.A 0.49%) (BRK.B 0.35%) massive portfolio. And not only are some of these “Buffett stocks” not at all-time highs, but some are also looking rather attractive from a long-term perspective. Here are three in particular that could be worth a closer look right now.
A Buffett Bank Stock with Lots to Like
Capital One (COF -1.47%) is one of just a few bank stocks that are still in Berkshire's portfolio, after many were sold in the wake of the mid-2023 banking turmoil. But it's not hard to see why Buffett might like it.
For starters, Capital One focuses on credit cards, which can be a highly profitable business. The average credit card interest rate is about 25% in the United States, and the bank pays about 4% on deposits. – Best Warren Buffett Stocks to Buy
Even when considering a reasonable default rate and the bank's other expenses, there's a lot of margin. In fact, Capital One's net interest margin is more than double that of most other banks of its size.
The company has agreed to acquire Discover (DFS -1.38%), and this creates a lot of interesting possibilities. The deal is expected to result in about $2.7 billion in synergies within a few years, and it will make Capital One the only traditional bank to own a payment network. Not only can it move its own payment volume to the network and save on interchange fees, but the bank also could invest in growing the network over time. – Best Warren Buffett Stocks to Buy
A Unique Homebuilder with Lots of Upside
Buffett added shares of several homebuilders to Berkshire's portfolio about a year ago, and NVR (NVR 2.52%) could be particularly interesting.
If you aren't familiar, NVR is a leading homebuilder that uses a unique “asset light” business model. Instead of buying large tracts of land and gradually selling individual lots to buyers, NVR buys purchase options on land, but doesn't actually buy land until it is ready to build a home. This allows for superior returns on equity, as well as downside protection in slowing real estate markets.
The recent environment has been a surprisingly strong one for homebuilders. With inventories of existing homes near generational lows, new homes have made up about one-third of the market (closer to 10% would be normal).
But with the slow market environment keeping many would-be buyers in their current houses, we could see a surge in homebuying activity once rates start to fall. And with an estimated shortage of several million homes in the United States, homebuilders are likely to be a long-tailed part of the solution once mortgage rates make buying a home more affordable. ( Best Warren Buffett Stocks to Buy )
The Ultimate “Buffett Stock” is Still a Good Long-Term Investment
As a final thought, the best Warren Buffett stock to buy right now could be Berkshire Hathaway itself. In fact, Berkshire has been a net seller of stocks in most recent quarters but has steadily used its capital to repurchase billions of dollars of its own shares.
I have written before that if I could own only one individual stock, Berkshire would be it. Not even close. And while I'm a big fan of both Capital One and NVR and own several Berkshire holdings in my own stock portfolio, the reality is that Berkshire Hathaway is like buying an all-in-one investment portfolio in a single stock.
For one thing, Berkshire owns more than 60 subsidiary businesses, including household names like GEICO, Duracell, Dairy Queen, and more. Many of them are highly recession-resistant and produce excellent cash flow no matter what the economy is doing. There's also the massive stock portfolio, with many of its positions hand-selected by Buffett himself. ( Best Warren Buffett Stocks to Buy )
And last but not least, Berkshire's $190 billion cash stockpile (likely more by the time you're reading this) gives it unmatched financial flexibility to take advantage of opportunities as they arise.
Conclusion
In conclusion, The Best Warren Buffett Stocks to Buy offer a diverse range of investment opportunities, each with unique strengths and potential for long-term growth. Capital One, with its profitable credit card business and strategic acquisition of Discover, presents a compelling case. NVR's innovative business model and strong market position make it a standout in the homebuilding sector. Finally, Berkshire Hathaway itself remains a robust choice, offering the stability of its diverse holdings and significant financial flexibility. Investing in these stocks could be a prudent move for those seeking value and stability in their portfolios. ( Best Warren Buffett Stocks to Buy )
FAQs
Q1: Why is Capital One a good investment choice?
A1: Capital One's focus on the highly profitable credit card business and its acquisition of Discover, which offers significant synergies, make it an attractive investment. (Best Warren Buffett Stocks to Buy )
Q2: What makes NVR a unique homebuilder?
A2: NVR's “asset light” business model, which involves buying land options instead of owning large tracts of land, provides superior returns on equity and protection in slower real estate markets. ( Best Warren Buffett Stocks to Buy)
Q3: Why is Berkshire Hathaway considered the ultimate Buffett stock?
A3: Berkshire Hathaway's diverse portfolio of over 60 subsidiary businesses, strong cash flow, and substantial cash reserves make it a highly flexible and resilient investment.
Q4: How does the current market environment benefit homebuilders like NVR?
A4: With existing home inventories at generational lows, new homes are taking up a larger market share. This trend, coupled with a potential surge in homebuying activity as rates fall, benefits homebuilders.
Q5: What is Berkshire Hathaway's strategy with its cash reserves?
A5: Berkshire's $190 billion cash stockpile allows it to capitalize on investment opportunities as they arise, providing unmatched financial flexibility.