Since bottoming out in 2022, the S&P 500 The index has shot to new highs. While no one knows how long this uptrend will last, history shows that bull markets tend to last longer than when the market is falling.
Of course, Warren Buffett doesn’t let these ups and downs faze him. He focuses on investing in solid companies that he believes will increase in value over many years.
Berkshire HathawayThe stock portfolio is full of outstanding companies. Three Fool.com employees recently picked their favorite stocks from Berkshire’s holdings. Here’s why they believe Apple (NASDAQ:AAPL), Lennar (NYSE:LEN)And Amazon (NASDAQ:AMZN) are solid buys at the moment.
One of the strongest brands in the world
John Ballard (Apple): Apple shares have underperformed so far in 2024. Investors appear concerned about declining iPhone sales in China and regulatory headwinds. But none of these obstacles affect Apple’s ability to deliver long-term growth and reward shareholders.
Apple was still Berkshire Hathaway’s largest investment at the end of 2023, with a stake of $174 billion. Buffett said a year ago that Apple was a better company than any other Berkshire company – a significant statement given the incredible returns Berkshire has generated over the years.
The decline represents a good buying opportunity ahead of a potentially strong period of growth for Apple. The company reportedly spends up to $1 billion annually on generative artificial intelligence (AI). There is widespread speculation that Apple may release new AI features for its iOS software as early as this year.
Over the next decade, AI could transform the customer experience, including potential implementation in AppleCare and Apple’s productivity apps like Pages and Numbers.
Apple has the money to continue improving its products. The company generated free cash flow of $107 billion last year and will continue to grow as it sells more devices worldwide.
Apple’s installed base of active devices continues to reach new highs, now exceeding 2.2 billion. While market participants are focused on weak iPhone sales in China, Apple is still gaining ground everywhere else.
This home builder still looks promising
Jeremy Bowman (Lennar): Berkshire Hathaway surprised investors last year with a long position in homebuilder stocks. Buffett (via Berkshire). DR Horton, NVR, and Lennar. The conglomerate has since sold DR Horton, the country’s largest homebuilder, but still retains small stakes in Lennar and NVR.
While both stocks are worth buying, Lennar is cheaper than NVR and is more similar to DR Horton, which just delivered a strong quarterly earnings report showing that demand for new homes remains strong and profits are continuing to flow into the sector.
We won’t get another quarterly update from Lennar until June, but the company appears well-positioned to benefit from the same trends, including increased interest rate transactions, a lack of inventory in existing homes, and an estimated housing shortage of 4 million due to restrictive zoning laws and years of chronic underdevelopment. These factors have all contributed to increased home prices, which is also a boon for homebuilders like Lennar.
In its first-quarter earnings report, Lennar reported 12.6% revenue growth, leading to a 21% increase in profits to $719 million. Earnings per share rose 25% to $2.57 as management took advantage of the low stock price to buy back shares. Over the last year, the company has reduced outstanding shares by about 3.5%.
Lennar also experienced growth in all four of its regions, demonstrating broad-based demand and execution. The number of new orders increased by 28% to 18,176 apartments, indicating healthy and growing demand.
With interest rates now expected to remain “higher for longer,” Lennar is well-positioned to benefit from the housing crisis and macroeconomic environment, and the stock looks cheap at a price-to-earnings ratio of just 11.
Lennar looks like a good bet for an upside as the company benefits from demand for new homes.
Buffett’s bet came late but was still profitable
Jennifer Saibil (Amazon): Buffett isn’t known for buying technology stocks, and he admitted he was late to the game when Berkshire finally invested in Amazon in 2019, 20 years after the company went public.
Amazon had already created millionaires, but that didn’t stop Buffett from buying at the time. Buffett is all about patient investing, and he preferred to buy Amazon once the company had a proven track record and strong profits while still offering tremendous opportunity.
Buffett didn’t buy Amazon to dabble in artificial intelligence (AI), and he probably wouldn’t buy stocks today just to capitalize on emerging trends. That could be part of the lesson of Buffett’s investing approach: If you buy stocks of great companies, you’ll end up benefiting from such future opportunities, which Amazon offers in abundance.
Amazon is the second largest company in the US by revenue, but its growth story still looks incredibly compelling. It is by far the largest e-commerce company in the US and e-commerce is growing faster than overall retail. The company has made structural changes to its e-commerce infrastructure that are expected to speed up deliveries at lower costs and strengthen its market dominance and pad profitability.
Amazon is also the leading provider of cloud services, and its AI tools for code developers and Amazon Web Services (AWS) customers are solidifying its lead over a growing number of competitors. Amazon is investing in this groundbreaking technology and has a long, open runway in this growth story.
Digital advertising has become Amazon’s fastest-growing segment, and this high-margin business is another lever the company is targeting to increase revenue. Its AI tools for advertisers, as well as the ability for advertisers to reach customers while they shop, make Amazon a straightforward platform for ads.
Growth stocks tend to do well in bull markets, and Amazon is already up 75% in the past year.
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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. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman holds positions at Amazon. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Berkshire Hathaway, Lennar, and NVR. The Motley Fool has a disclosure policy.
“3 Top Warren Buffett Stocks to Buy in This Bull Market” was originally published by The Motley Fool