A lot of eyes are on Warren Buffett. It comes with the territory when you are the greatest investor of our time. I don't like some of the stocks that he owns, but I am fond of Sirius XM Holdings (SIRI -3.45%), Nu Holdings (NU 3.74%), and Lennar (LEN -2.99%) as Berkshire Hathaway (BRK.A 0.95%) (BRK.B 0.68%) holdings.
Buffett's iconic holding company added to his stake for one of the three stocks in the second quarter. He also added to another one earlier this month. All three are among the more than three dozen publicly traded companies in the Berkshire Hathaway portfolio. They are the three names that I believe are no-brainer stocks to buy right now.
1. Sirius XM Holdings
There was a lot of chatter last week about the stocks that Berkshire Hathaway was trading during the second quarter. Lost in the news cycle was Buffett's company quietly adding to his already sizable position in Sirius XM long after the quarter ended. Unlike the quarterly updates that Berkshire Hathaway announces every three months, its sizable stake in Sirius XM requires it to file every transaction shortly after it happens.
Berkshire Hathaway had a 35.5% stake in the satellite radio monopoly at the end of the second quarter, but four purchases between July 31 and Aug. 4 have boosted its stake in Sirius XM to a whopping 37% of the media stock. It's worth noting that Buffett's company made these trades after the stock took a hit after posting poorly received financial results on the morning of July 31. Berkshire Hathaway isn't afraid to buy the dip, something that it has done often with Sirius XM as it has shed nearly a quarter of its value over the past year.
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Sirius XM is going through some growing pains, though with revenue declining slightly for the third consecutive year it's probably better to diagnose this as "lack of growing" pains. It is serving satellite and streaming content to 33 million subscribers. Retention is within historical standards, shedding 1.5% of its audience every month. The challenge has been getting new listeners on the platform, a tricky feat given sluggish car sales and younger drivers turning to cheaper content through smartphone apps streaming through their connected cars.
I still like Sirius XM despite the slow fade-out. It continues to crank out annual free cash flow north of $1 billion. It's a money machine that returns money to its shareholders through stock buybacks and a generous dividend. Sirius XM's quarterly payouts currently yield a healthy 4.7%.
This doesn't mean that investors are just collecting dividend checks while parked in quicksand. Sirius XM is trying to make its platform more appealing to younger listeners. With it unlikely to extend its contract with Howard Stern after 20 years, Sirius XM has been investing in rising talk show and podcast talent. The stock is cheap, trading for 8.4 times this year's projected earnings and 7.5 times next year's target.
2. Nu Holdings
One of Buffett's more exotic holdings is Nu Holdings, the Brazilian company behind fintech and digital banking speedster NuBank. You may not be familiar with NuBank, but 60% of the adult population of its home country has an account with the branchless bank. It also has a presence in Mexico and Colombia.
Unlike the market's poor reaction to Sirius XM's second quarter, investors cheered Nu's performance last week. The stock soared 9% on Friday after delivering a better-than-expected 29% revenue increase in U.S. dollars. Adjusted earnings climbed 34%.
The enthusiasm for Nu has continued this week. Three analysts have upgraded Nu this week, including a rare double upgrade from Citi on Tuesday. Analyst Gustavo Schroden sees the business and its earnings momentum accelerating. He previously had a sell rating on the shares, but is bumping it up two steps to a buy. Citi's Schroden is now a believer when it comes to investing in Nu, doubling his target price from $9 to $18 in the process.
3. Lennar
An interesting trend among the 12 stocks that Berkshire Hathaway bought last quarter was a play on residential real estate construction. He bought into a pair of homebuilders and a leading steel manufacturer. One of the two developers was Lennar.
I'm conflicted on the real estate play. There is certainly room for building more homes, but if mortgage rates head lower in the coming months it's going to open the floodgates of existing homeowners to put their properties on the market. It's been the thin inventory of older homes for sale giving developers a lot of pricing power with their new properties.
Lennar's revenue is expected to inch lower this year with a sharper fall in profitability. Lennar is trading for 15 times this year's earnings, but that multiple was in the single digits a year ago when the stock was lower and its net income was higher. On a bright note, Lennar trades at a more compelling 13.5 times next year's expected earnings. It's also expected to return to modest top-line growth in 2026. I'm not as bullish on Lennar as I am with Sirius XM and Nu, but if Berkshire Hathaway sees an opportunity in Lennar I'm going to pay attention.
