Warren Buffett has generated tremendous wealth for Berkshire Hathaway investors. From 1965 through 2023, Berkshire shares increased by 4,384,748%, or about 20% per year. Anyone can benefit from his exceptional business insights by taking a peak at the stocks in Berkshire's portfolio.
However, some of Berkshire's stock holdings offer better value than others right now. Here's why three Motley Fool contributors believe Coca-Cola(NYSE: KO), NVR(NYSE: NVR), and Amazon(NASDAQ: AMZN) are solid buys heading into the new year.
One of Buffett's longest-held stocks
John Ballard (Coca-Cola): Warren Buffett originally invested in Coca-Cola in the late 1980s, and after buying more shares in 1994, he continues to patiently hold every share. Based on Coke's current payout, Berkshire is set to receive $776 million in dividend payments from Coca-Cola during the next year, which shows an excellent return made on the $1.3 billion original cost of the investment.
Coca-Cola's projections call for 2024 non-GAAP revenue -- meaning not complying with generally accepted accounting principles -- to rise 10%, with adjusted earnings per share up 14% to 15%. The company has dealt with sales headwinds during the inflationary environment of the past few years but it's gaining market share in non-alcoholic beverages, which reflects a strong brand.
As the headwinds fade potentially in 2025, management anticipates emerging markets unit-case volume to grow more quickly than in developed markets, suggesting a lot of opportunity for the brand to grow internationally. Coca-Cola Zero Sugar is performing very well, with unit-case volume up 11% across all geographic operating segments. Trademark Coca-Cola products also are holding up well, which is helping offset the recent weakness in water, sports, coffee, and tea.
The main advantage is Coke's brand power and its ability to gradually raise prices to keep up with inflation. It has increased unit-case volume in each of the past two years, setting up the business for even better growth when the global economy is on solid footing.
At the current share price of about $63, the stock trades at a fair valuation of 21 times this year's earnings estimate. The trailing dividend yield of 3.05% is also attractive, compared to the average 1.22% yield of the S&P 500. Coca-Cola has a long history of raising the dividend, reflecting the financial strength of the business through all market environments.
The housing market will recover
Jeremy Bowman (NVR): It's no secret that the housing market is struggling. The pandemic-era boom led to the post-pandemic bust as high mortgage rates and high home prices have created a "lock-in" effect among current homeowners, who are now reluctant to sell and move.
However, the housing market should eventually thaw, and the benchmark federal funds rate is already coming down, which should help bring mortgage rates down, as well.
Homebuilder stocks have been left behind by the post-election rally, but one that should fare well next year is NVR, a longtime outperformer in the sector and a Berkshire holding. The company has benefited from a lower-risk strategy of negotiating the rights to purchase finished lots to build, rather than buying and developing them itself, which requires keeping them on its balance sheet.
Homebuilder optimism recently rose to its highest level in more than 2 1/2 years on hopes that the Trump administration would lower regulations and boost the industry, a good sign for a recovery next year. Homebuilder stocks, like NVR, are also cheap as the stock currently trades at a price-to-earnings ratio (P/E) of 16.7, a significant discount to the S&P 500, and setting the stock up for easy gains.
New orders soared in the third quarter, rising 19% to 5,650 units, while the average sale price fell by 1% to $450,700. Revenue in the quarter rose 6% to $2.57 billion, while earnings per share rose 4%. NVR also benefits from a stock-buyback program and the company reduced its shares outstanding by 5% over the last year.
With an affordable valuation, an imminent housing recovery, and a track record of success, NVR looks like a smart buy for 2025.
Not the oldest Buffett stock, but one of the best
Jennifer Saibil (Amazon): Amazon isn't your classic Buffett stock. It doesn't pay a dividend, it isn't a financial stock, and it's not that old. Buffett recently noted that his two longest-held stocks, Coca-Cola and American Express, have been around since 1850 and 1886, respectively, joking that "Berkshire is not big on newcomers."
However, despite its youth, Amazon fits the Buffett mold in many ways. It's an industry leader, has several revenue streams, plays a big role in the American economy, and is likely to be around for a long time. But it doesn't account for a large portion of the Berkshire Hathaway portfolio and likely never will.
Even though it's not a Buffett favorite, it's still a no-brainer choice for almost any investor. It has the top spot in two huge and growing industries, e-commerce and cloud services. It's a competitive player in streaming, has a robust advertising business, and has many other smaller units, like devices and healthcare. Plus, it has current tailwinds in artificial intelligence (AI).
Amazon unveiled its generative AI plans about two years ago, just when ChatGPT launched and captured everyone's attention. Generative AI has been a game-changer since then, making things easier in all kinds of ways, from doing the tedious parts of many jobs to helping creators think outside the box.
Amazon has a huge AI business meeting demands across a broad spectrum of needs in both the e-commerce and cloud computing businesses, and management feels like it's just getting started. A Bloomberg report found that generative AI is expected to become a $1.3 trillion market by 2032 and grow at a compound annual growth rate of 42% by then. Chief Executive Officer Andy Jassy said that it's already producing billions for Amazon, and this is just the beginning.
Amazon is poised to benefit from AI trends, but it has tons of opportunities throughout its empire. It's a no-brainer stock to own in 2025 and well beyond.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. American Express is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in American Express. Jeremy Bowman has positions in Amazon. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, and NVR. The Motley Fool has a disclosure policy.
