Invest in Two Stocks Advised by Warren Buffet, With Caution on One
Berkshire Hathaway, with its esteemed CEO Warren Buffett, boasts a diverse portfolio of approximately 45 investments worth around $300 billion. While every stock in the portfolio has its merits, a few stand out more than others as we kick off 2025. Here are two of those " Buffett stocks" with solid potential, along with one that might not provide the best returns during this period.
Ally's Time to Shine
Buffett and his team trimmed Berkshire's bank stock holdings in 2023, following turbulence in the financial sector. However, a few banks still remain in the portfolio. Among them, Ally Financial (ALLY 2.90%) shines particularly bright.
Berkshire currently holds a 9.5% stake in Ally, an online-only bank that was spun off from General Motors after the financial crisis. The bank offers various services, from auto and mortgage loans to savings and checking accounts, and even a robo-advisor.
Ally has a strong revenue stream from its high-yield auto loans, standing at 10.5%, which could potentially see an increase with interest rate drops. Moreover, Ally's deposit costs have been hovering around 4.2%, and these could decrease as the Federal Reserve lowers interest rates.
The recent surge in loan delinquencies presents a cautionary note, but at a 10% discount to book value, this investment's potential risk-to-reward ratio looks quite appealing.
Sirius XM's Legal Monopoly
Berkshire has had a notable stake in Sirius XM Holdings (SIRI 2.53%) for some time now, but recent purchases suggest Buffett remains bullish on the satellite radio leader. Sirius XM took a significant hit in 2024, dropping by nearly 60%. But despite the year's volatility, Berkshire continued to invest, purchasing shares and converting several types of Liberty Media Sirius XM tracking stocks.
At present, Berkshire holds a 35% share of Sirius XM, which has been operating without any significant competition since its spinoff from Liberty Media. Despite flat revenue figures since 2021 and a slight dip in subscriber numbers, Sirius XM is highly profitable and boasts a reasonably low forward P/E ratio.
A decrease in interest rates could boost new-car sales, a significant growth channel for Sirius XM. The company also recently introduced an ad-supported platform to compete with apps like Apple Music and Spotify, which could potentially expand its user base.
Apple's High Valuation
While Apple (AAPL 1.27%) is undeniably a strong player within the tech sector, Berkshire's recent decisions suggest it isn't the most attractive opportunity in the portfolio right now. Berkshire has significantly reduced its Apple stake over the past year, citing tax reasons among other factors. Apple currently trades at a forward P/E of 32.3%, and its market cap now exceeds $3.7 trillion.[1]
Buffett's earlier enthusiasm for Apple was apparent when the company had a P/E ratio under 15, indicating a value stock. However, its current valuation might not offer the best returns given that other stocks in Berkshire's portfolio seem to have more promising growth prospects.
There you have it: two promising Berkshire investments to consider amidst the 2025 market landscape, along with one that might be better to sidestep for the time being. Berkshire Hathaway's portfolio is booming with compelling investment opportunities beyond the three discussed here; each has its merits and deserves careful consideration.
Note: Although this article is based on current information and relevant enrichment data, it does not attempt to provide complete coverage of all Berkshire Hathaway holdings, updates, or changes in investment strategy.
[1] As of March 2025.
- Given Berkshire Hathaway's reduced Apple stake, Warren Buffett might be finding better investment opportunities elsewhere, as Apple currently trades at a high forward P/E of 32.3%.
- Ally Financial, with its discounted book value of 10%, could provide an appealing risk-to-reward ratio, even amidst the recent surge in loan delinquencies.
- Warren Buffett's continued interest in Sirius XM Holdings, despite the stock's volatility, suggests potential gains for investors, especially with the company's introduction of an ad-supported platform.
- With interest rate drops potentially increasing Ally's auto loan revenue and decreasing deposit costs, Ally Financial is an appealing investment option in Berkshire Hathaway's 2025 portfolio.
