Warren Buffett has earned his nickname, the Oracle of Omaha, after building a long and successful investing track record. Therefore, if the company he heads, Berkshire Hathaway, owns a stock, it's worth taking notice.
You still need to do your own diligent work, of course. After all, he's not infallible, and you should never buy a stock merely because someone else owns it. You should also make sure the stock fits with your investment approach, including your risk tolerance.
Among Berkshire Hathaway's list of equity holdings, these two stocks offer attractive return potential.
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Lennar
Lennar (LEN 0.98%) has long been a successful homebuilder. It has been in existence for seven decades, which means it has been through a lot of housing cycles. And Chief Executive Officer Stuart Miller has been with the company for more than 35 years.
Right now, things look bright for Lennar. Its fourth-quarter revenue increased 7.8% to $11 billion. And its backlog, which gives a peek into the future since they are homes under a sales contract, was $6.6 billion. Management expects most will get delivered this year.
The strong results come despite buyers confronting higher mortgage rates. Last year, the 30-year fixed rate neared 8%. It's recently lowered to 6.9%, but rates could drop as inflation continues to moderate, and that would likely boost housing demand.
Lennar's stock trades at a richer valuation, however. The price-to-earnings (P/E) ratio stands at 11, roughly double where it was at the start of 2023. But with veteran leadership and strong prospects, it seems worth it to pay up for the shares; your $300 would get you about two shares at recent prices.
Moody's
Moody's (MCO 0.25%) has two strong businesses. There's the venerable ratings business that researches and assigns ratings to bonds. This business has limited competition because there are only two other major companies that provide this service -- S&P Global and Fitch Ratings. The analytics business provides tools to organizations to help them assess and manage risk.
Both businesses continue to do well. Total revenue grew 15% in the fourth quarter to $1.5 billion. The analytics business saw 11% revenue growth and the ratings unit had a 19% gain.
Although the ratings business can fluctuate depending on the economic cycle, it faces limited competition and should continue doing well over the long haul as governments and corporations continue to issue debt. Meanwhile, management has positioned the analytics unit to take advantage of the steady trend of organizations utilizing data in their decisions.
Trading at a P/E multiple of 44, up from about 40 a year ago, Moody's stock isn't cheap. That's what happens when a company continues to perform well. But long-term investors shouldn't fret, because the business is strong. Back in November you could have bought a single share for about $300, but with the stock's recent rise you'll need another $80 -- or you might be able to buy a fractional share.
Lennar and Moody's have proven themselves over decades. More importantly, they haven't rested on their laurels, and both continue to have strong long-term prospects. For those concerned about valuation, you can use dollar-cost averaging whereby you invest the same dollar amount at regular intervals. It also allows you to build up a nice position over time.
Clearly, Buffett is on to something by owning these two stocks. Fortunately, you can buy them, too. You probably won't end up a billionaire, but you should see a strong return on your investment.
