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2 Top Warren Buffett Stocks to Buy Right Now

By Will Ebiefung - May 26, 2021 at 10:31AM

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What can you learn from the Oracle of Omaha's stock picks?

Warren Buffett is considered by many to be the most successful investor of all time, so when he bets on a particular stock, it pays to find out why. Let's explore the reasons two Berkshire Hathaway (BRK.A 0.17%), (BRK.B 0.14%) holdings, RH (RH -6.76%) and Sirius XM (SIRI 0.90%), could make great additions to your investment portfolio in this expensive stock market. 

1. RH (formerly Restoration Hardware)

Warren Buffett is famous for betting on value stocks -- companies with low valuations relative to their earnings and growth potential. With a forward price-to-earnings multiple of 27, RH isn't cheap. But its valuation is much lower than the S&P 500 average of 45. The company could make a great pick because of its strong growth rate and convincing strategy for continued expansion.

Hundred-dollar bills and stacks of gold coins.

Image source: Getty Images.

Fourth-quarter revenue grew 22% to $812 million, while net income soared 90% to $130 million. RH performed well during the coronavirus pandemic (with sales up 8% to $2.8 billion in full-year 2020) because it benefited from a suburban migration, as people exited big cities during the crisis. This trend led to increased spending on furniture and home decoration, especially among wealthier families. 

But management doesn't see the strong results as a temporary boost from the pandemic. Instead, they see it as a "systemic lift" as the company transitions to a more luxury-oriented business model. 

According to CEO Gary Friedman, RH plans to build "the most comprehensive and compelling collection of luxury home furnishings in the world." The fall launch of a digital portal called "The World of RH" could help the company achieve this by connecting to more clients and improving brand awareness. RH is also expanding its furniture and decor lineup through new styles such as RH Contemporary (a modern theme launched in 2021), RH Color, RH Couture, and RH Bespoke (planned in the coming years). 

2. Sirius XM 

With a forward P/E multiple of 20, Sirius XM is another value stock in Warren Buffett's Berkshire portfolio. The company makes a compelling investment because of its rock-solid economic moat and massive cash flow, which it uses to return value to investors. 

Following the merger between Sirius and XM Satellite radio in 2008, Sirius XM has enjoyed a virtual monopoly on satellite radio services in the U.S. It is also well-differentiated from terrestrial radio because of its range of exclusive channels (such as the Howard Stern show) and ad-free user experience. Sirius XM further bolstered its competitive moat in audio entertainment with the $3.5 billion acquisition of Pandora in 2019 to give itself a foothold in music discovery and ad-free music.

First-quarter revenue grew 5% to $2.1 billion and adjusted EBITDA increased 7% to $682 million. The company is benefiting from the reopening of the economy, which includes strong new car sales and more Americans getting back on the road. Management expects sales to grow 5% to $8.4 billion in full-year 2021 and an adjusted EBITDA of $2.6 billion (flat against 2020).

Sirius XM is not the fastest-growing company, but it makes up for that with its strong cash flow, which it returns to investors in the form of a $0.06 dividend (that's a 1% yield) and an aggressive share repurchase program. As of March 2021, the board has authorized $16 billion worth of share repurchases, with $1.1 billion remaining under the program. 

Strong moats and good value 

Warren Buffett's investment strategy focuses on value and competitive advantages, and RH and Sirius XM fit well into his Berkshire Hathaway portfolio. RH is better for investors who prioritize top-line growth and business expansion, while Sirius XM is ideal for safety-oriented investors because of its rock-solid economic moat in the satellite radio industry. 

 

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends RH and Sirius XM Radio and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short June 2021 $240 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.71 (0.90%) $0.06
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$439,932.54 (0.17%) $765.53
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$292.75 (0.14%) $0.41
RH Stock Quote
RH
RH
$277.52 (-6.76%) $-20.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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