In 1973, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) held its first annual shareholder meeting in the cafeteria of one of its subsidiaries and drew a few dozen people. Roughly 50 years later, around 40,000 people make the pilgrimage to Omaha each year. This is the Warren Buffett effect in action.
Since taking over as Berkshire's CEO six decades ago, the Oracle of Omaha has led his company's Class A shares (BRK.A) to an aggregate gain of more than 5,681,000%, as of the closing bell on Jan. 17. This is far and away better than the total return of the benchmark S&P 500 over the same timeline, and it's earned Buffett quite the following among professional and everyday investors.
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Today, Buffett oversees a 44-stock, $297 billion portfolio at Berkshire Hathaway. However, the outlook for these 44 stocks can differ greatly.
Based on the 12-month price targets issued by select Wall Street analysts, three Buffett stocks can return up to 50% for their shareholders in 2025.
Sirius XM Holdings: Implied upside of 44% in 2025
The first Warren Buffett stock that can deliver significant upside, based on the prognostication of one Wall Street analyst, is satellite-radio operator Sirius XM Holdings(NASDAQ: SIRI). According to Benchmark's Matthew Harrigan, Sirius XM stock can reach $32 per share, which would represent upside of 44% from where shares closed last week.
On one hand, Sirius XM has been contending with undeniable headwinds. Despite being the only licensed satellite-radio operator, it's still competing for listeners with online and terrestrial radio companies. Further, vehicle sales have been mostly stagnant over the last two years, which is a concern given that Sirius XM counts on transitioning promotional subscriptions with new vehicle purchases to self-pay subscribers.
In spite of these headwinds, there are reasons to believe a $32 price target is within reach. As noted, the company is a legal monopoly, which does afford it some degree of subscription pricing power that other radio operators and online streaming services may lack.
The more important differentiating factor for Sirius XM has always been how it generates its revenue. While most traditional radio companies rely almost exclusively on advertising to keep the lights on, Sirius XM brought in close to 77% of its net sales through the first nine months of 2024 from subscriptions and only around 20% from advertising. Whereas businesses can quickly pare back ad spending during periods of economic instability, subscribers are far less likely to cancel their service. In short, it makes Sirius XM's operating cash flow more consistent and predictable.
There's an intriguing value proposition, as well. Amid one of the priciest stock markets in history, Sirius XM stock can be scooped up for just over 7 times forward-year earnings. If management can keep a lid on spending and lean on its monopoly driven subscription pricing power, it should bode well for Sirius XM's shareholders.
Image source: Getty Images.
Occidental Petroleum: Implied upside of 50% in 2025
A second Warren Buffett stock with plenty of upside potential in 2025 is a company the Oracle of Omaha has been buying hand over fist for three consecutive years: integrated oil and gas giant Occidental Petroleum(NYSE: OXY). Analyst John Freeman at Raymond James foresees Occidental stock gushing to $78 per share, which would signal a gain of 50% in the new year.
Although the spot price of crude oil is important for all integrated energy companies, it takes on added meaning for Occidental Petroleum. Despite having midstream transmission pipelines and downstream chemical operations, the lion's share of Occidental's revenue can be traced to its drilling operations. If the spot price of crude oil rises, Occidental's benefits more than its peers.
The thing to keep in mind about Occidental Petroleum is that the opposite scenario is also true. If the price for oil declines, few if any integrated energy companies is likely to be hit harder.
Thankfully, there are catalysts that can buoy the spot price of oil. Russia's invasion of Ukraine nearly three years ago has created energy demand uncertainties in Europe. Meanwhile, Donald Trump's November victory and the expected implementation of tariffs paves the way for geopolitical tension that could drive the price of oil higher.
Perhaps the biggest wildcard for Occidental Petroleum in 2025 is the company's balance sheet. Although it made some headway in reducing its debt following its acquisition of Anadarko in 2019, Occidental is still lugging around $25.5 billion in net debt, as of Sept. 30, 2024. Though Buffett generally avoids businesses constrained by a lot of debt, Occidental appears to be the exception.
Apple: Implied upside of 41% in 2025
The third Warren Buffett stock that at least one Wall Street analyst believes can soar in 2025 is none other than Berkshire Hathaway's largest holding, Apple(NASDAQ: AAPL). Less than a month ago, Wedbush analyst Dan Ives lifted his price target on Apple to $325 per share, which implies upside of 41% in the new year.
Ives's excitement has to do with Apple's integration of artificial intelligence (AI) solutions into its products. The ongoing incorporation of Apple Intelligence (Apple's AI operating model) into its physical devices via software updates is expected to boost consumer demand for the company's products and enhance brand loyalty.
In addition to revamping its physical products lineup with Apple Intelligence, the company's continued transformation as a services provider has taken off. Apple's Services segment, which is fueled by subscriptions, keeps its customers loyal to its umbrella of products and services, and should help to smooth out the revenue fluctuations that typically accompany major iPhone upgrade cycles.
I'd be remiss if I didn't also point out the value Apple's world-leading capital-return program has provided. Since the start of 2013, it's repurchased more than $725 billion worth of its common stock and reduced its outstanding share count by almost 43%. Companies with steady or growing net income and a declining share count will typically see their earnings per share (EPS) climb and be viewed more favorably by investors.
However, Apple stock is historically pricey, relative to its trailing-12-month EPS. Between Oct. 1, 2023, and Sept. 30, 2024, Buffett oversaw the sale of 67% of Berkshire Hathaway's stake in Apple. Even though the Oracle of Omaha loves the Apple brand, its management team, and its capital-return program, he's first-and-foremost a value investor -- and "value" is a term that would be a stretch to describe Apple at the moment.
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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
