If you're looking for advice on where to invest in 2024, it's hard to find a better source than Warren Buffett. The Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) chief executive officer has a track record of trouncing the S&P 500 over a nearly 60-year history, as Berkshire has generated a compounded annual return of about 20% -- double that of the S&P 500.
Luckily for investors, it's easy to see what Buffett's Berkshire conglomerate owns because the company must report its holdings to the Securities and Exchange Commission every quarter. Based on Berkshire's holdings as of the third quarter, here are two Buffett stocks worth buying in 2024.
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1. Bank of America
The Oracle of Omaha's favorite bank is the first Buffett stock to consider for 2024. Bank of America (NYSE: BAC) isn't just his favorite bank stock -- it's also Berkshire's second-largest holding behind Apple. Buffett has sung the praises of BofA CEO Brian Moynihan on more than one occasion, saying he likes Moynihan "enormously" and that he avoids doing "dumb things."
The Berkshire chief has been investing in financial stocks since his career began and is an expert in the sector. One of his biggest concerns in banks is management, and Moynihan has done an excellent job repairing Bank of America after its blowup during the financial crisis.
Today, the bank continues to grow, even in a challenging economic environment. In its third quarter, Bank of America reported a 10% increase in net income to $7.8 billion on a 3% increase in revenue to $25.2 billion. The profit growth benefited, in part, from a lower tax rate, but the bank also delivered solid results. Businesses have been wary of borrowing, and higher interest rates have made deposits more expensive.
Bank of America missed out on the 2023 stock market rally due, in part, to a sell-off during the regional banking crisis in March that now seems undeserved. However, 2024 could be a more rewarding year for the stock.
A recession now seems unlikely, and BofA isn't expecting one. Falling interest rates should encourage more consumer and business spending, and the stock looks historically cheap at a price-to-earnings ratio of 9.5. The bank also has a lot of room to raise its dividend -- the stock currently yields 2.9%.
With the economy shifting to recovery and the stock looking cheap, Bank of America seems well-positioned to make gains this year.
2. D.R. Horton
Another stock that looks set to benefit from the expected economic recovery this year is D.R. Horton (NYSE: DHI), the largest U.S. homebuilder.
D.R. Horton was one of the three homebuilder stocks that Berkshire bought in the second quarter of 2023, along with Lennar and NVR. Currently, the company's stock looks well-priced, and its business should continue to benefit from a housing market that has suffered from a lack of inventory available for sale.
Homeowners were able to take advantage of rock-bottom rates during the pandemic, and many of those buyers are reluctant to sell and lose out on those rates, especially with mortgage rates hovering around 7%. Additionally, there's a large housing shortage in the U.S., estimated at 4 million homes across the country. It will take years, or even decades, before this shortage ends, helping to prop up homes prices.
In other words, demand for new homes is strong and could be supported by expected interest-rate cuts from the Fed this year. D.R. Horton is well-capitalized and well-positioned to take advantage of that demand.
Revenue in its fiscal fourth quarter increased 9% to $10.5 billion, while sales orders jumped 39% to 18,939 homes. This showed a considerable backlog in demand.
The company's balance sheet has improved significantly during the past year, as well, with its cash balance growing from $2.6 billion to $3.9 billion. In addition, its debt fell from $6.1 billion to $5.1 billion.
With demand for new homes expected to remain strong in 2024 and D.R. Horton trading at a price-to-earnings ratio of just 11, the stock looks like a good bet to continue gaining in 2024.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Lennar, and NVR. The Motley Fool has a disclosure policy.
