My Favorite Warren Buffett Stock to Buy Right Now

Keith Speights, The Motley Fool

Mon, Feb 19, 2024, 2:05 AM 4 min read

Several worthy contenders

I like and own several of the stocks in Buffett's Berkshire Hathaway portfolio. Many of them are solid choices for investors to buy.

For example, Amazon's profitability continues to improve significantly. The company has a major tailwind with generative AI. Its advertising 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 think that Buffett's bigger bets on energy stocks could pay off nicely. In particular, 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 another great choice, as are the other payment-processing stocks that Buffett owns. And I could go on about additional fantastic stocks to buy -- including Berkshire Hathaway itself.

Backup plans

As I thought about my decision, though, I realized 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 main reasons why I liked D.R. Horton apply to Lennar and NVR as well. They're all homebuilders. As such, they should all benefit from two key factors.

First, the U.S. continues to face a major housing shortage. Moody's Analytics recently estimated that as many as 2 million additional homes are needed nationwide. It could take years to build enough homes to restore a balance in the market.

Second, lower interest rates are almost certainly on the way. Even with a hotter-than-expected January inflation report, many economists still expect the Federal Reserve to begin cutting rates in May or June. Whenever the rate cuts come, it should provide a boost for homebuilders.

My favorite Buffett stock to buy now

So which of these two remaining homebuilders in Berkshire's portfolio is my favorite Buffett stock to buy now? I'll go 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 much longer. As of the end of 2023, Berkshire's stake in the homebuilder totaled around $21.7 million. That amounts to pocket change for the huge conglomerate. Since Berkshire exited its position in D.R. Horton, Lennar (and perhaps NVR, too) could be next on the chopping block. But I think Lennar's long-term growth prospects, the potential for a near-term catalyst, and its attractive valuation make it a great stock to buy rather than sell right now.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Amazon, Bank of America, Berkshire Hathaway, and Mastercard. The Motley Fool has positions in and recommends Amazon, Bank of America, Berkshire Hathaway, Lennar, Mastercard, and NVR. The Motley Fool recommends Occidental Petroleum and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

My Favorite Warren Buffett Stock to Buy Right Now was originally published by The Motley Fool

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