Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) has a stock portfolio worth about $365 billion with positions in dozens of companies, each of which was selected by CEO Warren Buffett or his investment managers. And to be sure, most of the businesses represented in the portfolio are rock-solid and are among the top companies in their respective industries. So, it's tough to make a strong investment case against many of them.
However, there are some that look particularly attractive as we head into 2024. Here are three that are worthy of a closer look from long-term investors in December.
A homebuilder with an unusual business model
Berkshire Hathaway surprised many investors when it added shares of not one, but three homebuilders to its portfolio in 2023. However, when you take a step back, it makes sense -- the real estate market is extremely slow, making this potentially a great time to load up on the sector's best-in-breed companies.
Of those three, NVR(NYSE: NVR) is a particularly interesting selection. It uses a somewhat different business model than its peers that has allowed it to generate best-in-class returns on equity for years. In simple terms, while most other homebuilders buy large tracts of land and sell lots off incrementally, NVR uses a land-light model where it acquires purchase option contracts, but doesn't actually buy any land until it has a contract to build a home on that property.
The proof is in the numbers. Since 1993, NVR has delivered a 64,330% total return for investors. The stock trades at a valuation of just 15 times forward earnings, and could benefit tremendously if mortgage rates start to decline and the real estate market heats up.
A rock-solid bank at a discount
Bank of America(NYSE: BAC) is Berkshire Hathaway's second-largest stock holding, and its position originated from a particularly savvy deal Buffett made during the financial crisis. Berkshire has bought more shares several times since then, and now owns 13% of the bank. Even though Buffett and his team have soured on several other bank stocks recently, they haven't sold a single share of Bank of America.
In short, the bank has a rare combination of top-notch leadership, great asset quality, and an attractive valuation. Its recent results have been strong, with 10% year-over-year net income growth in the third quarter, excellent returns on equity, and deposits that increased sequentially despite a difficult environment for brick-and-mortar banks in 2023. Considering that the stock trades for just 95% of its book value and that the business has been producing consistently strong performances, it's no wonder Buffett has stuck with Bank of America even as he's been selling shares from most of Berkshire's other bank holdings.
Could this be the best Buffett stock of all?
As a final selection, one of the best "Buffett stocks" to buy could be Berkshire Hathaway itself. I've said before that if I could only own one stock it would be Berkshire Hathaway. With over 60 wholly owned subsidiary businesses and a massive stock portfolio, it's like buying a diverse investment portfolio in a single stock.
One of the biggest reasons to like Berkshire Hathaway right now is because it is positioned to thrive no matter what the economy and stock market do. If things go well for the market, Berkshire's stock portfolio will likely reflect that fact and its operating earnings from its businesses will climb. On the other hand, if the economy takes a downturn, the conglomerate has an all-time high $157 billion in cash and Treasury securities on its balance sheet. This means that it could take advantage of discounted valuations if the market falls, and can make savvy investments if businesses need capital. Further, in today's higher-interest rate environment, that stockpile of cash is earning Berkshire billions of dollars more each year.
In short, Berkshire Hathaway is a stock that works in all market environments, and despite its size, it could continue to deliver market-beating returns for decades to come.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP® has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, and NVR. The Motley Fool has a disclosure policy.
