It can pay to follow Warren Buffett’s investments. Through the conglomerate Berkshire Hathaway, the investor has made some remarkable stock picks, such as his 100-bagger investment in American Express. Even though Buffett is set to retire at the end of this year, he and his investment team are still buying stocks for Berkshire’s portfolio.
Here are three stocks that they just plowed a combined $1.33 billion into. Should you follow Buffett and buy these three stocks for your own portfolio today?
In the second quarter, Berkshire Hathaway purchased 5.1 million shares of Lennar (NYSE: LEN). The homebuilder has gone through a volatile period after rising interest rates on mortgage loans turned the housing market upside down. In the second quarter, its stock fell to about $100 from more than $180 in late 2024, but has recovered to about $120 as of Oct. 14.
Homebuilders are cyclical businesses, but Lennar has stood the test of time and turned into one of the leading players in the sector, generating $35 billion in revenue during the past 12 months. Net income during that period fell to $2.7 billion compared to about $3.9 billion in 2023 and $4.6 billion in 2022, which is due to increased costs and decreased home selling prices, which were hurt by higher interest rates.
Buffett and Berkshire Hathaway likely see Lennar as a cheap stock set for earnings growth if the Federal Reserve lowers interest rates further, which will bring down mortgage rates and help propel home prices higher. Lennar’s price-to-earnings ratio (P/E) is just 12.7 even though its net income is currently depressed, which could make the stock cheap on a forward-looking basis. Plus, there is a major housing shortage in the U.S., which will give Lennar homebuilding demand for years to come.
Image source: Getty Images.
Constellation Brands(NYSE: STZ) is an alcohol company focused on Mexican beer, with brands such as Pacifico, Modelo, and Corona rounding out its portfolio. Beer consumption in the U.S. is falling, which has caused the stock to decline 48% from all-time highs. Last quarter, the company’s beer shipments declined 8.7% year over year.
Even though alcohol consumption has declined, Berkshire Hathaway likely sees a discounted sector with long-term pricing power in Constellation Brands. The stock trades at an enterprise value-to-EBIT (earnings before interest and taxes) of just 11, which makes it look cheap for investors buying today.
Even if alcohol consumption declines for a few more years, it has been a mainstay in societies for centuries and can represent a durable asset for Berkshire Hathaway over the long term. With these high quality Mexican beer brands that are taking market share in the U.S., Buffett likely has a cheap stock in Constellation Brands that will do well by shareholders during the next decade.
The last of the three stocks Buffett has been buying is Chevron(NYSE: CVX), which is Berkshire Hathaway’s fifth-largest holding.
Chevron is one of the oil and gas giants, an energy producer that has been around for decades. Although its performance is generally tied to the price of oil — a commodity whose price has fallen by half since the Russia-Ukraine war started in 2022 and sent oil prices to $120 a barrel — its stock is cheap and can be an inflation hedge for Berkshire.
At a P/E of about 20, Chevron doesn’t seem like a bargain at first glance. However, this is because the company’s net income has fallen to $14 billion during the past 12 months compared to more than $30 billion with the price of oil above $100. The shares still pay a dividend yielding 4.5% right now, with earnings set to soar if the price of oil begins to march higher.
Buffett may not describe Chevron as a wonderful business like American Express, but it is a nice asset to own during a bull market that can diversify your portfolio. Add the oil company if you want a stock as an inflation hedge for the next decade.
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American Express is an advertising partner of Motley Fool Money. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, and Lennar. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.
