The S&P 500 is near its all-time high as we enter the second half of 2024, but not all stocks are looking expensive. Most of the market's gains have been fueled by technology stocks, especially the mega-cap companies that have large AI operations.
However, legendary investor Warren Buffett is largely focused on value stocks when it comes to Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) massive portfolio. And not only are some of these "Buffett stocks" not at all-time highs, but some are also looking rather attractive from a long-term perspective. Here are three in particular that could be worth a closer look right now.
A Buffett bank stock with lots to like
Capital One(NYSE: COF) is one of just a few bank stocks that are still in Berkshire's portfolio, after many were sold in the wake of the mid-2023 banking turmoil. But it's not hard to see why Buffett might like it.
For starters, Capital One focuses on credit cards, which can be a highly profitable business. The average credit card interest rate is about 25% in the United States, and the bank pays about 4% on deposits.
Even when considering a reasonable default rate and the bank's other expenses, there's a lot of margin. In fact, Capital One's net interest margin is more than double that of most other banks of its size.
The company has agreed to acquire Discover(NYSE: DFS), and this creates a lot of interesting possibilities. The deal is expected to result in about $2.7 billion in synergies within a few years, and it will make Capital One the only traditional bank to own a payment network. Not only can it move its own payment volume to the network and save on interchange fees, but the bank also could invest in growing the network over time.
A unique homebuilder with lots of upside
Buffett added shares of several homebuilders to Berkshire's portfolio about a year ago, and NVR(NYSE: NVR) could be particularly interesting.
If you aren't familiar, NVR is a leading homebuilder that uses a unique "asset light" business model. Instead of buying large tracts of land and gradually selling individual lots to buyers, NVR buys purchase options on land, but doesn't actually buy land until it is ready to build a home. This allows for superior returns on equity, as well as downside protection in slowing real estate markets.
The recent environment has been a surprisingly strong one for homebuilders. With inventories of existing homes near generational lows, new homes have made up about one-third of the market (closer to 10% would be normal).
But with the slow market environment keeping many would-be buyers in their current houses, we could see a surge in homebuying activity once rates start to fall. And with an estimated shortage of several million homes in the United States, homebuilders are likely to be a long-tailed part of the solution once mortgage rates make buying a home more affordable.
The ultimate "Buffett stock" is still a good long-term investment
As a final thought, the best Warren Buffett stock to buy right now could be Berkshire Hathaway itself. In fact, Berkshire has been a net seller of stocks in most recent quarters but has steadily used its capital to repurchase billions of dollars of its own shares.
I have written before that if I could own only one individual stock, Berkshire would be it. Not even close. And while I'm a big fan of both Capital One and NVR and own several Berkshire holdings in my own stock portfolio, the reality is that Berkshire Hathaway is like buying an all-in-one investment portfolio in a single stock.
For one thing, Berkshire owns more than 60 subsidiary businesses, including household names like GEICO, Duracell, Dairy Queen, and more. Many of them are highly recession-resistant and produce excellent cash flow no matter what the economy is doing. There's also the massive stock portfolio, with many of its positions hand-selected by Buffett himself.
And last but not least, Berkshire's $190 billion cash stockpile (likely more by the time you're reading this) gives it unmatched financial flexibility to take advantage of opportunities as they arise.
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Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and NVR. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.
