Warren Buffett has made life harder for me. I initially planned to place in writing this text about D.R. Horton. Nevertheless, Buffett (or one amongst his two lieutenants) decided to completely exit Berkshire Hathaway‘s position inside the homebuilder inside the fourth quarter of 2023.
The good news is that Buffett still owns quite a few great stocks. The bad news is that it’s difficult to determine on which one is the perfect. After considerable deliberation, though, I’ve made my pick. Here’s my favorite Buffett stock to buy right away.
Several worthy contenders
I like and own several of the stocks in Buffett’s Berkshire Hathaway portfolio. Plenty of them are solid decisions for investors to buy.
For example, Amazon‘s profitability continues to reinforce significantly. The company has a serious tailwind with generative AI. Its promoting business is growing by leaps and bounds.
Unsurprisingly, Buffett holds positions in some attractively valued stocks. The Japanese trading houses, especially Sumitomo, stand out. So does Bank of America, with its forward earnings multiple of 10.6x.
I feel that Buffett’s greater bets on energy stocks could repay nicely. Specifically, Occidental Petroleum looks intriguing with its major investments in direct air capture, a technology that literally sucks carbon dioxide out of the atmosphere.
Mastercard is one other great alternative, as are the other payment-processing stocks that Buffett owns. And I could go on about additional improbable stocks to buy — including Berkshire Hathaway itself.
Backup plans
As I assumed of my decision, though, I spotted that Buffett left me a “plan B” despite selling all of Berkshire’s stake in D.R. Horton. Actually, he left me a “plan C” too. Berkshire’s portfolio still includes Lennar (NYSE: LEN) and NVR (NYSE: NVR).
The essential the reason why I liked D.R. Horton apply to Lennar and NVR as well. They’re all homebuilders. As such, they should all make the most of two key elements.
First, the U.S. continues to face a serious housing shortage. Moody’s Analytics recently estimated that as many as 2 million additional homes are needed nationwide. It could take years to construct enough homes to revive a balance available available in the market.
Second, lower rates of interest are almost actually on one of the simplest ways. Even with a hotter-than-expected January inflation report, many economists still expect the Federal Reserve to begin cutting rates in May or June. At any time when the speed cuts come, it should provide a lift for homebuilders.
My favorite Buffett stock to buy now
So which of those two remaining homebuilders in Berkshire’s portfolio is my favorite Buffett stock to buy now? I’ll go together with Lennar.
Valuation was a key consideration for me. Lennar’s shares trade at a forward price-to-earnings ratio of 10.8x, well below NVR’s forward earnings multiple of nearly 16x.
I also like that Lennar’s board of directors is taking more aggressive steps to reward shareholders. While NVR recently announced a $750 million stock buyback program, Lennar has expanded its share repurchases by a whopping $5 billion. The company also increased its annual dividend from $1.50 per share to $2 per share.
It’s possible that Lennar won’t be a Buffett stock for for for much longer. As of the highest of 2023, Berkshire’s stake inside the homebuilder totaled around $21.7 million. That amounts to pocket change for the massive conglomerate. Since Berkshire exited its position in D.R. Horton, Lennar (and possibly NVR, too) may thoroughly be next on the chopping block. But I feel Lennar’s long-term growth prospects, the potential for a near-term catalyst, and its attractive valuation make it a terrific stock to buy barely than sell right away.
Do you’ve got to take a position $1,000 in Lennar right away?
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Bank of America is an promoting partner of The Ascent, a Motley Idiot company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Keith Speights has positions in Amazon, Bank of America, Berkshire Hathaway, and Mastercard. The Motley Idiot has positions in and recommends Amazon, Bank of America, Berkshire Hathaway, Lennar, Mastercard, and NVR. The Motley Idiot recommends Occidental Petroleum and recommends the subsequent options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Idiot has a disclosure policy.
My Favorite Warren Buffett Stock to Buy Right Now was originally published by The Motley Idiot