Warren Buffett recently celebrated his 92nd birthday. As you can imagine, he's slowing down a little bit. In the second quarter, the holding company he's managed since 1965, Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%), made significant purchases of just eight stocks.
If you're looking for stocks to buy in September, these two look like prime candidates. They are some of the biggest bets Buffett made in the second quarter, and they're a lot less expensive now than they were a few months ago.
Image source: The Motley Fool.
Before you blindly follow any money manager into a stock, it's best to find out why they think it has legs. Here's why Buffett can't get enough of these two.
Ally Financial
Ally Financial (ALLY -1.56%) is a digital bank, and like many fintech stocks, it's been hammered more than 40% below the peak it reached in 2021. Now it offers a 3.7% yield that's way above average right now. A juicy dividend is only part of why this was Buffett and Berkshire Hathaway's largest purchase in the second quarter.
Ally lacks overhead expenses that come with maintaining physical branches. As the former financial arm of General Motors, it also knows a thing or two about the lucrative auto lending space. This well-run bank originated $13.3 billion worth of consumer auto loans in the second quarter.
A low valuation, strong returns on capital, and a commitment to distributing those returns as buybacks and dividends are three features Buffett famously admires. Ally Financial ticks all of these boxes. The stock is significantly lower than it was during the second quarter when Buffett was buying it hand over fist. Now you can pick up the banking stock at just 0.87 times its book value.
Using low-interest consumer bank deposits to fund higher-interest auto loans helped the company report an outstanding 14.7% return on common equity in the second quarter. This shareholder-friendly company raised its payout by 58% and repurchased enough stock to lower its share count by 11.8% over the past year.
Markel Corp
If you wish you had bought Berkshire Hathaway shares decades ago, consider purchasing Markel (MKL -0.78%) now. Like Berkshire, Markel operates an insurance operation and uses the premiums it receives to invest in other companies.
Markel buys equity stakes in other businesses, or acquires them whole and then takes a hands-off approach to management. With so much in common, it's not surprising that Buffett made this Berkshire's fourth-largest stock purchase in the second quarter.
With the stock down about 20% since the beginning of April, investors who buy Markel now will get an even better price than Berkshire paid. At recent prices, you can buy Markel for a little less than 17 times forward earnings expectations.
Markel stock is trading at a historically low multiple because its bottom line plunged into negative territory this year. Rising interest rates in the bond market and sharply declining stock prices caused the company to report a $1.8 billion net loss in the first half of 2022.
With excellent leadership and a long-term business model that Berkshire Hathaway has been testing for more than five decades, we can be sure the losses won't last. Bond markets and stock markets have fallen hard, but recoveries last a lot longer than downturns. Buying this stock now, while it's under pressure, could do wonders for your portfolio's performance over the long run.
