Since bottoming out in 2022, the S&P 500 index has rocketed to new highs. While no one knows how long this run will last, history shows bull markets tend to last for longer stretches than when the market falls.
Of course, Warren Buffett isn't fazed by these ups and downs. He focuses on investments in solid companies that he believes will grow in value over many years.
Berkshire Hathaway's stock portfolio is full of outstanding businesses. Three Fool.com contributors recently selected their favorite stocks from Berkshire's holdings. Here's why they believe Apple (AAPL 1.01%), Lennar (LEN 1.21%), and Amazon (AMZN 1.32%) are solid buys right now.
One of the strongest brands in the world
John Ballard (Apple): Apple stock has underperformed so far in 2024. Investors appear concerned about slowing iPhone sales in China and regulatory headwinds. But none of these obstacles impact Apple's ability to deliver growth and reward shareholders over the long term.
Apple was still Berkshire Hathaway's largest investment at the end of 2023, with a stake worth $174 billion. Buffett said a year ago that Apple was a better business than any Berkshire owned -- a significant statement, considering the incredible returns Berkshire has delivered over the years.
The dip is a good buying opportunity ahead of a potentially strong growth period for Apple. The company is reportedly spending up to $1 billion per year on generative artificial intelligence (AI) technology. It is widely speculated that Apple may release new AI features for its iOS software as early as this year.
Over the next decade, AI could be game-changing for the customer experience, including potential implementation in AppleCare and Apple's productivity apps like Pages and Numbers.
Apple has all the cash it needs to continue improving its products. The company generated $107 billion in free cash flow over the last year, and it will keep growing as it sells more devices around the world.
Apple's installed base of active devices continues to hit new highs, now over 2.2 billion. While market participants focus on weak iPhone sales in China, Apple is still on the move everywhere else.
This homebuilder still looks promising
Jeremy Bowman (Lennar): Berkshire Hathaway surprised investors last year by going long on homebuilder stocks. Buffett (through Berkshire) purchased D.R. Horton, NVR, and Lennar. The conglomerate has since sold D.R. Horton, the country's largest homebuilder, but it still retains small positions in Lennar and NVR.
While both of those stocks are worth buying, Lennar is cheaper than NVR and is more similar to D.R. Horton, which just reported a strong quarterly earnings report, showing that demand for new homes remains strong, and profits continue to flow into the sector.
We won't get another quarterly update from Lennar until June, but the company looks to be in a good position to benefit from the same trends, including elevated interest trades, a lack of inventory in existing homes, and an estimated housing shortage of 4 million due to restrictive zoning laws and years of chronic underbuilding. Those factors have all contributed to elevated home prices, which is also a boon for homebuilders like Lennar.
In its first-quarter earnings report, Lennar reported 12.6% revenue growth, which drove earnings up 21% to $719 million, and earnings per share rose 25% to $2.57 as management has taken advantage of the low stock price to buy back stock. Over the last year, the company has reduced shares outstanding by about 3.5%.
Lennar also reported growth in all four of its regions, showing broad-based demand and execution. New orders increased 28% to 18,176 homes, showing healthy and growing demand.
With interest rates now expected to remain "higher for longer," Lennar is in a good position to capitalize on the housing crunch and macro environment, and the stock looks cheap at a price-to-earnings ratio of just 11.
Lennar looks like a good bet to move higher as it capitalizes on the demand for new homes.
Buffett's bet was late, but still profitable
Jennifer Saibil (Amazon): Buffett isn't known for buying technology stocks, and he acknowledged that he was late to the game when Berkshire finally invested in Amazon in 2019, 20 years after it became a public company.
Amazon had already minted millionaires, but that didn't deter Buffett from buying at that point. Buffett is all about patient investing, and he preferred to buy Amazon once it had a proven track record and strong profits while still offering tremendous opportunities.
Buffett didn't buy Amazon for exposure to artificial intelligence (AI), and he probably wouldn't buy stocks today just to benefit from emerging trends. That might be part of the lesson in Buffett's investing approach: When you buy stock in great companies, you'll end up winning from these kinds of future opportunities, which Amazon has in abundance.
Amazon is the second-largest company in the U.S. by sales, but its growth story still looks incredibly compelling. It's the largest e-commerce company in the U.S. by a wide margin, and e-commerce is growing faster than overall retail. It has made structural changes to its e-commerce infrastructure that speed up deliveries at lower costs, and that should enhance its dominant position as well as pad profitability.
Amazon is also the leading cloud services provider, and its AI tools for code developers and Amazon Web Services (AWS) clients reinforce its lead against a growing cadre of competitors. Amazon is investing in this groundbreaking technology, and it has a long, open runway in this growth story.
Digital advertising has become Amazon's fastest-growing segment, and this high-margin business is another lever it's pushing to increase sales. Its AI tools for advertisers, as well as the ability for advertisers to reach customers as they shop, make Amazon a no-brainer platform for ads.
Growth stocks tend to perform well in bull markets, and Amazon is already up 75% over the past year.
