There are a few dozen stocks in the $375 billion portfolio owned by Berkshire Hathaway (BRK.A +2.74%)(BRK.B +2.65%), with most of the larger investments hand-picked by legendary investor Warren Buffett himself. And while there are several attractive opportunities for investors to choose from, there are two stocks in particular that look like strong buys as we head into June.
With that in mind, here are two excellent stocks from Berkshire's portfolio to buy right now, and one that seems to be a bit on the expensive side.
Buffett's favorite electric-vehicle stock
Given Buffett's generally conservative and cautious investment style, it might surprise you to learn that there's an electric-vehicle stock in Berkshire's portfolio. But it's one many American investors might not be familiar with: China-based BYD (BYDDY 3.82%).
OTC: BYDDY
Key Data Points
Berkshire invested in BYD several years ago -- it was actually a top idea of Berkshire's late vice chairman, Charlie Munger -- and it has been an amazing performer since. Berkshire owns about 8% of the company today, and with a closer look at the business, it's not difficult to see why it's still a "Buffett stock."
For one thing, BYD has been around for about 30 years, with roots in rechargeable battery manufacturing. It eventually pivoted to EVs and in the fourth quarter of 2023 was the number one manufacturer of electric vehicles in the world. The company has a competitive advantage in that it makes its own batteries, as well as most of the other parts in its vehicles. It has a 35% market share in China, and its execution has been impressive. Plus, BYD isn't just big. It's massively profitable, generating $6.9 billion of free cash flow in 2023 alone.
With EV adoption still in its relatively early stages, and with a large growth opportunity still ahead of it, especially in non-China markets, BYD is an impressive EV company that trades for about 18 times forward earnings estimates.
A cheap bank stock that could be a big winner
There are a few bank stocks in Berkshire's portfolio, but Ally Financial (ALLY 1.26%) in particular looks attractive right now. The auto lender and online banking company has posted some impressive results in a difficult environment, trades for a bargain valuation, and is well positioned to benefit when rates normalize.
In the first quarter of 2024, Ally originated nearly $10 billion in auto loan volume and had its highest number of applications ever. The banking platform saw deposits rise by $2.9 billion to $145.1 billion, providing a low-cost source of funding. And despite widespread fears of a rise in consumer defaults, Ally's charge-off rate isn't showing signs of trouble.
As interest rates have rise, Ally's deposit costs have increased, and this has led to a 38 basis point year-over-year decline in net interest margin. But as rates normalize, this should reverse course and help boost profitability. In the meantime, Ally trades for less than 11 times forward earnings and has a 3.1% dividend yield that is likely to grow over time.
A great company that's a bit too pricey for my taste
Visa (V 0.31%) is an impressive business and I don't necessarily think it will be a bad performer for investors who buy now. Just to put Visa's size into perspective, there are now 4.4 billion Visa cards worldwide, and the company processes more than 200 billion transactions on an annual basis.
Even with its massive scale, Visa continues to grow impressively, with 10% year-over-year revenue growth and 12% EPS growth in its latest fiscal quarter. Cross-border transaction volume continues to be a major growth driver and could be for many years to come.
My problem with Visa is that it's a relatively expensive stock at a time when there are far more attractive opportunities. Sure, it is a rather bulletproof business and has produced impressive growth, but a P/E ratio of nearly 31 seems a bit high. Simply put, there seem to be far better values in Buffett's portfolio, as well as stocks with more compelling growth opportunities. Note that you can also make the same argument against Mastercard (MA +0.23%), which is also in Berkshire's portfolio.
Again, I'm not saying that Visa is a bad stock to own. It's just difficult to make the case, based mainly on valuation, that it is one of the best "Buffett stocks" to buy right now.
You won't go wrong with most of Buffett's portfolio
Admittedly, Berkshire's portfolio is filled with stocks that are well positioned to make money in any type of economic environment, and there are tons of bargain-priced value stocks among the dozens Buffett owns. In fact, it's tough to make a solid case that any of Berkshire's stocks, including Visa, are likely to be money-losers over the next five to 10 years.
Having said that, of the stocks in Buffett's portfolio, both BYD and Ally look like excellent opportunities at their current prices, and I believe both have excellent chances to beat the market for investors who buy them now.
