Warren Buffett has achieved an investment record that will be hard to beat. He took over a struggling textile mill in 1965 and turned it into a holding company with a market value of nearly $1 trillion, making Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) one of the top 10 largest components of the S&P 500(SNPINDEX: ^GSPC) today.
Berkshire is Buffett's largest personal holding and is a great starting place for any investor to grow their savings. Additionally, Berkshire owns stakes in homebuilder NVR(NYSE: NVR) and leading cosmetics retailer Ulta Beauty(NASDAQ: ULTA). Here's why a team of Motley Fool contributors believe these stocks are timely buys right now.
Buffett continues to buy a favorite stock
John Ballard (Berkshire Hathaway): Buffett owns 38% of Berkshire Hathaway's class A shares, and he's been regularly buying back shares of class A and class B stock on behalf of Berkshire in recent years. Through the first half of 2024, Buffett authorized repurchasing $2.9 billion worth of Berkshire shares at prices not much lower than where it is currently trading. This means Buffett sees excellent value in the stock.
Berkshire owns dozens of wonderful businesses outright, including GEICO and BNSF Railway, to go along with its stock portfolio. Buffett views the company's stock holdings, including large stakes in Apple, American Express, and Coca-Cola, the same as owning the whole business.
Buffett is already preparing for a day to scoop up more businesses on the cheap. He sold half of Berkshire's stake in Apple in Q2, bringing Berkshire's total cash and short-term investments to a whopping $276 billion. The large cash position, which is also enhanced by the billions in cash flow coming in from Berkshire's subsidiaries, provides ample ammunition for the greatest investor to pounce on attractive investment opportunities as they arise.
Berkshire is truly a stock for all markets and all investors. With the recent buybacks, Buffett is sending a bullish signal to investors about the company's future.
A best-in-breed homebuilder
Jeremy Bowman (NVR): Buffett is known for looking for stocks that have wide economic moats, reliable business models, and good valuations, and NVR possesses all three qualities.
NVR is one of the nation's leading homebuilders, and it's often considered best-in-class in the sector due to its differentiated business model. Unlike many of its peers, NVR doesn't begin by buying land outright. Instead, it negotiates the rights to buy parcels for development, which gives it much more financial flexibility and eliminates much of the downside risk in homebuilding.
It's also been a longtime outperformer on the stock market as shares are up nearly 700% over the last decade. The company looks well prepared to capitalize on the expected recovery in the housing market as the Federal Reserve has begun its rate-cutting cycle, and both presidential candidates have proposed plans to mitigate the national housing shortage, which is estimated to be in the millions of homes.
In its recently reported third-quarter earnings report, the company reported a 19% increase in new orders to 5,650 units from the quarter a year ago, though the average sales price was down 1% to $450,700.
Heading into an expected expansion in the housing market, the company's balance sheet looks strong with $2.5 billion in cash, $2.3 billion in inventory (mostly made up of lots in sales agreements with customers), and it has just $2.2 billion in liabilities.
Finally, the stock looks affordable at a price-to-earnings ratio of 19.5.
Given its record and the pent-up demand for housing, NVR looks like a good bet to keep beating the market.
This new pick checks Buffett's boxes
Jennifer Saibil (Ulta Beauty): Ulta Beauty is a new Buffett stock, and it's not one that investors had anticipated. However, it checks the boxes for what Buffett tends to look for in an excellent stock pick.
First off, it has a durable, long-term competitive advantage in its differentiated model and leading position. It operates nearly 1,400 stores across the U.S., opening about 40 annually. It also has a robust digital presence.
Ulta sets itself apart from the competition in two significant ways.
First, it offers a gamut of cosmetics, skincare, and haircare brands and products, unlike other stores, which generally focus on either upscale or mass brands. It features 600 brands and 25,000 products, meeting the needs of a large population who shop at its stores.
This is not a model that can work in every industry because retailers need to carve out a niche and develop an image to appeal to a certain strata of society. However, management recognized that the beauty business is different, and beauty enthusiasts like to shop across brand lines. The second way Ulta stands out is that it offers beauty services in addition to products, becoming a one-stop shop for its loyal customers.
Second, the company is highly profitable, with a strong cash position. Net income fell from $300.1 million to $252.6 million in the fiscal second quarter (ended Aug. 3), and operating margin fell from 15.5% to 12.9%. Those are still strong numbers in the context of the operating environment; customers are switching down, but they're still shopping at Ulta. This is the kind of cash-cow business that's set up for regenerating solid long-term performance.
Next, Ulta invests in shareholder value through a healthy share repurchase program. It has repurchased nearly $6 billion of its own stock since 2014 and authorized a new $2 million buyback program earlier this year.
Finally, the company has been dealing with a bout of external headwinds that sent the stock price plummeting, and it looks undervalued. Ulta stock trades at a price-to-earnings ratio of under 15, well below its three-year average of 19, and far below competitors like Estee Lauder and e.l.f. Beauty. It's down 25% this year, and now is a great opportunity to buy Ulta on the dip.
Should you invest $1,000 in Berkshire Hathaway right now?
Before you buy stock in Berkshire Hathaway, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $860,447!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 21, 2024
American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express and Apple. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, NVR, Ulta Beauty, and e.l.f. Beauty. The Motley Fool has a disclosure policy.
