I've never heard Warren Buffett predict which stocks in Berkshire Hathaway's (BRK.A -0.76%) (BRK.B -0.69%) portfolio will deliver the greatest gains over the next year. He's called the Oracle of Omaha, but even Buffett knows that such near-term predictions usually fall short.
But I'm about to give it a shot anyway. I fully realize the folly of attempting something that Buffett wouldn't do. However, I nonetheless predict that three of the stocks he owns will be his biggest winners in 2024. Here are those stocks (listed in alphabetical order), along with why I have great expectations for each one.
1. American Express
American Express (AXP -0.62%) emerged as one of Buffett's best-performing stocks this year. Shares of the financial services giant were in negative territory as recently as October. However, a fourth-quarter surge now has the stock on track to finish 2023 up more than 25%.
I think that AmEx's momentum will continue into the new year. Why? For one thing, business is booming. The company reported its sixth consecutive quarter of record revenue in the third quarter. Its earnings per share soared 34% year over year to an all-time high.
Macroeconomic factors also appear to bode well for American Express in 2024. Inflation, although still higher than the Federal Reserve would like it to be, has moderated considerably. Unemployment levels are low historically. And the prospects for the Fed to cut interest rates next year appear to be pretty good.
These should be tailwinds for other Berkshire holdings as well, notably including payment processing leaders Mastercard and Visa. However, I picked American Express as a likely bigger winner in large part because of its low valuation. Its shares currently trade at less than 14.8 times expected earnings.
2. D.R. Horton
D.R. Horton (DHI 0.78%) has been an even more impressive winner for Buffett this year than American Express. Shares of the homebuilder have skyrocketed by nearly 70%. As was the case with AmEx, most of those gains came in the final two and a half months of the year.
I predict D.R. Horton will be one of the best Buffett stocks of the new year for a couple of reasons. The first ties in with the macroeconomic factors that should help American Express. In particular, I think that the potential for interest rate cuts could boost home sales, especially in the second half of 2024.
The second is that there's still an acute housing shortage in this country. Bank of America published a paper a few months ago that stated the U.S. needs another 4 million houses.
D.R. Horton is uniquely positioned to benefit from lower interest rates and the need for more housing. It's the largest homebuilder by volume in the country, a distinction it has held since 2002. The company operates in 33 states.
What's more, the stock is cheap -- especially considering the company's growth prospects. D.R. Horton's price/earnings-to-growth (PEG) ratio is a low 0.64.
3. Occidental Petroleum
Unlike American Express and D.R. Horton, Occidental Petroleum (OXY -0.15%) hasn't been a great stock for Buffett in 2023. However, I think that sets the stage for a much better performance in 2024.
First of all, Occidental's valuation is attractive. Its shares trade at only 11.3 times expected earnings. I suspect this will entice Buffett to buy even more of the stock in 2024. Berkshire secured regulatory approval to acquire up to 50% of the company's shares. So far, it has bought 27.2%.
I think there's a real possibility that Berkshire will aggressively add to its stake in Occidental in the coming months. If this happens, it could ignite a broader buying frenzy that pushes the stock price much higher.
Of course, Occidental's fortunes hinge on oil prices. However, Goldman Sachs projects that Brent crude will hit $85 per barrel by mid-2024. That's higher than the current price of a little under $77 per barrel. If Goldman Sachs is right, Occidental should be in good shape in 2024 -- and so should Buffett.
