2 Warren Buffett Stocks to Buy Hand Over Fist and 1 to Avoid

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) owns about 45 stocks in its $300 billion portfolio, many of which were hand-selected by CEO and legendary investor Warren Buffett himself. While there's a solid case to be made in favor of pretty much every stock Berkshire owns, there are some that look more attractive than others right now.

With that in mind, here are two "Buffett stocks" that look like bargains as 2025 gets underway, as well as one that I would stay away from for the time being.

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A Buffett bank stock trading below book value

In the wake of the 2023 turbulence in the financial sector, Buffett and his team pared down the company's bank stock holdings, selling several major investments. But a few bank stocks remain in the portfolio, and Ally Financial (NYSE: ALLY) looks particularly interesting right now.

Berkshire owns 9.5% of Ally, which is an online-only bank that was spun off from General Motors soon after the financial crisis. While its focus is understandably on auto lending, it has evolved into a full-featured bank, with checking and savings accounts, CDs, a brokerage platform, a robo advisor, and several other types of loans.

Ally is a highly profitable bank, thanks to the average yield of 10.5% on its newly originated auto loans. And its deposit cost (about 4.2% as of the latest quarter) could fall significantly as the Fed lowers rates.

The third-quarter results showed an unexpected jump in loan delinquencies, which should certainly be monitored. However, at a 10% discount to book value, the risk-reward profile makes a lot of sense right now.

Buffett now owns 35% of this near monopoly

Berkshire has owned stock in Sirius XM Holdings (NASDAQ: SIRI) in one form or another for some time now, but has recently been adding to the stake. That's especially interesting, as Sirius fell by nearly 60% in 2024, dramatically underperforming the S&P 500.

Berkshire bought shares of the company on the way down and converted several types of Liberty Media Sirius XM tracking stocks that it already owned. As a result, Berkshire now owns 35% of the satellite-radio leader.

I use the term "leader" loosely. Sirius XM isn't just a leader -- it's essentially a legal monopoly. And at first glance, it might not seem like a great opportunity. Revenue has been essentially flat since 2021, and the company's subscriber base is actually 5% lower than it was at its peak in 2019.

However, there's a lot to like about Sirius XM right now, and it's easy to see why Buffett might have been attracted to it. For one thing, Sirius XM is highly profitable, and the stock trades for less than 8x forward earnings.

If interest rates fall in the coming years, it could reinvigorate new-vehicle sales, which is a major growth pipeline for the company. Plus, Sirius XM recently rolled out a new ad-supported product to compete with internet-based apps, which could dramatically broaden its audience.

A great business that's a little too expensive

Don't get me wrong. I think Apple (NASDAQ: AAPL) is a great company and could continue to grow revenue at a double-digit pace for years to come. I simply think at its current valuation, there are better opportunities in Berkshire's portfolio. At the current market cap of about $3.7 trillion, Apple trades for more than 33x forward earnings and 9x its trailing-12-month revenue.

Buffett has sold more than half of Berkshire's Apple stake over the past year. It's unclear exactly why he sold, although he has mentioned capital-gains tax reasons and has said that stocks, in general, are trading for more than their intrinsic value.

The bottom line

Berkshire Hathaway has about four dozen stocks in its portfolio, and to be fair, there's a strong bull case to be made for pretty much all of them. There's nothing that's especially speculative or outrageously expensive. However, the key takeaway is that there are some stocks that look more attractive than others right now, and the two discussed earlier are good examples.

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Ally is an advertising partner of Motley Fool Money. Matt Frankel has positions in Ally Financial, Berkshire Hathaway, and General Motors. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.