Don't expect Warren Buffett to predict which stocks in Berkshire Hathaway's portfolio will be the biggest winners in 2025. He would be the first to tell you he doesn't know how any given stock will perform over the next 12 months.
Buffett's right, of course. None of us can be confident about any stock's near-term performance. However, it's fun at the start of a new year to step out on a limb and make a few predictions. So with full disclosure that my picks are based on hunches more than anything else, here are the three Buffett stocks I predict will be the biggest winners in 2025.
1. Nu Holdings
Nu Holdings (NU 0.82%) would have been one of Buffett's best-performing stocks of 2024 if the year ended in late October. Shares of the Latin American digital bank were up as much as 88% at one point during the past year. However, Buffett's sale of nearly 20% of Berkshire's stake in Nu rattled investors and sparked a major pullback.
NYSE: NU
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I think, though, that Nu's prospects in the new year look bright. The stock is more attractively valued after the recent sell-off, with shares trading at only 17.5 times forward earnings. This forward earnings multiple is especially compelling considering Nu's growth opportunities.
Nu's revenue soared 53% year over year in the third quarter of 2024. The company's number of active customers jumped 24% year over year. Meanwhile, its costs to serve active customers continued to trend downward.
Most of Nu's success thus far has been achieved in its home country of Brazil. More than half of Brazilian adults use Nu's financial platform. But Nu CEO David Velez said in the Q3 earnings call that Mexico "could be another Brazil" for the company. And Nu is gaining momentum in Colombia as well.
2. Ally Financial
Ally Financial's (ALLY 1.93%) comments at an industry conference in September pretty much ruined any chance its stock might be one of Buffett's big winners of 2024. The financial services company is a major player in the auto financing market. Ally's CFO, Russ Hutchinson, revealed at the Barclays Global Financial Services Conference on Sept. 10, 2024, that credit conditions in its retail auto business were deteriorating more rapidly than anticipated.
NYSE: ALLY
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CEO Michael Rhodes acknowledged in Ally's Q3 earnings call in October that the company faces "some earnings challenges over the next few quarters." Part of the problem is that the Federal Reserve's interest rate cuts are causing near-term repricing of floating-rate assets and hedges. However, those rate cuts should serve as a tailwind for Ally over the medium term. Forward-looking investors in 2025 should realize this.
Investors should also find Ally's valuation attractive. The stock trades below 8 times forward earnings. Its price/earnings-to-growth (PEG) ratio based on five-year earnings growth projections is a super-low 0.57, according to financial markets infrastructure and data company LSEG.
Wall Street appears to think this Buffett stock could rebound nicely over the next 12 months. Analysts' average price target for Ally Financial reflects an upside potential of around 16%.
3. Lennar
Lennar (LEN +2.70%) stands out as one of the relatively few losers in Buffett's portfolio in 2024. Shares of the homebuilder initially racked up a solid gain but tumbled later in the year. Investors responded negatively to the Fed's hint that fewer interest rate cuts than expected could be on the way. Lennar also missed analysts' revenue and earnings estimates with its fiscal Q4 results.
NYSE: LEN
Key Data Points
However, this bad news is more than baked into Lennar's share price now. The stock trades at only 9.6 times forward earnings. That's much lower than the forward earnings multiple of 15.5 for NVR, another homebuilder stock owned by Buffett.
Even if the Fed doesn't cut interest rates as much as many hoped, any reductions that lead to lower mortgage rates should help Lennar. The pent-up demand for housing remains strong, and there's not enough supply.
I also suspect that concerns about how potential tariffs imposed by the incoming Trump administration might affect Lennar could largely be laid to rest in 2025 and lead to a rally for the stock. Lennar co-CEO Stuart Miller said in the Q4 call that the company's "early evaluation suggests limited impact to us and the industry." Co-CEO Jon Jaffe noted that Lennar began shifting to U.S.-based suppliers eight years ago.
