Warren Buffett has a knack for finding great companies selling at bargain levels. He’s consistently picked winners for years by targeting quality stocks when they hit a rough patch. Even with the recent market turbulence, Buffett can still dig up deals in 2023. Though he plays some moves close to the chest, looking at Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) latest high-conviction buys gives insight into where the investing legend is putting his money to work.
Of course, that doesn’t mean that he isn’t into momentum plays. He’s been scooping up homebuilder stocks lately, and they have been on a tear. Unfortunately, Berkshire’s portfolio includes a lag of around two months or more, so Warren Buffett is already sitting on some hefty gains on the homebuilder stocks. Common sense says a plateau could be near for such stocks.
Again, by the time you read this, many of these Warren Buffett stocks have gone up considerably, and Berkshire may have changed positions on some of them. While Buffett is a great investor, I recommend you form your own conclusions based on their current valuations. I am simply stating the facts here, so don’t shoot the messenger!
Occidental Petroleum (OXY)
While oil prices have pulled back over the last few months, I believe crude could be nearing a bottom here, with some speculators betting oil may surge back up to $90 per barrel again soon. However, this short-term oil price fluctuation isn’t the only rationale behind Warren Buffett’s purchase of Occidental Petroleum (NYSE:OXY). Buffett has been notably bullish on OXY stock for quite some time now. Much of that appears to be due to the fact that Occidental boasts substantial operations in several oil-rich locations that offer massive growth opportunities ahead.
Admittedly, investing in oil companies is controversial, as the rise of clean energy has led many investors to avoid the traditional energy sector entirely. That said, I think OXY stock still offers compelling value here, especially considering its recent underperformance versus other oil majors. On its latest earnings call, Occidental’s management team emphasized that the company possesses a diverse, high-quality asset portfolio that continues to churn out record free cash flows quarter after quarter. Its unique mix of unconventional and conventional resources provides resilience across commodity cycles. Occidental is also making great strides in low-carbon ventures that can create additional shareholder value over the long term.
So while the future of oil certainly faces some uncertainty, Buffett likely sees significant upside potential still in OXY stock. The company is delivering operationally and financially, plus it offers exposure to future oil price upside if crude markets tighten global inventories. He increased his positions here by 5% to $13.2 billion, his biggest buy last quarter.
DR Horton (DHI)
Homebuilder stocks like DR Horton (NYSE:DHI) have exploded higher over the past year, so it’s no surprise that Warren Buffett has moved to scoop up names like this. Conditions have recently become quite favorable for leading homebuilders, with low existing home inventory levels combined with the normalization of previous pandemic-related supply chain challenges. That powerful combination helps explain why DR Horton and its peers have shined in 2023, despite ongoing concerns about a potential broader economic slowdown.
DR Horton reported very strong Q3 results, including a 37% jump in net orders compared to the same quarter last year. While margins retreated moderately from the unprecedented peaks achieved last year, they are gradually recovering now as both home prices and the level of buyer incentives have stabilized considerably. The company also specifically noted that construction cycle times are decreasing as the availability of materials and labor continues to improve incrementally. With the extremely limited housing supply still constraining the overall market, there could be further momentum ahead for DR Horton’s business.
Thanks to its diverse product mix and leading market share position, DR Horton remains well-positioned to continue gaining more market share in this significant housing supply-demand imbalance. Berkshire Hathaway added $726.4 million of DHI stock to its stash.
Capital One (COF)
While major financial stocks overall stumbled along with the broader market in 2022, Capital One’s (NYSE:COF) tempting valuation after its pullback likely drew Warren Buffett in to build a position. In particular, Capital One’s generous capital return program, including both a solid dividend and very aggressive share buybacks, makes the stock tough for value investors like Buffett to ignore. In the second quarter of 2023 alone, COF has already repurchased $150 million of its own shares.
However, Capital One is not immune to the increased economic uncertainty, as evidenced by its Q2 earnings results showing moderately higher loan losses. Credit card charge-offs are gradually normalizing from the unusually low levels witnessed during the pandemic period. Yet, per management’s commentary on the latest quarterly earnings call, aggregate credit quality remains quite solid for Capital One, for now at least, particularly in its most recent vintages of newly originated loans and credit card accounts.
While it’s unclear exactly how long the current economic slowdown may last, Capital One is prudently leaning into growth opportunities in several key areas, like continuing to expand its digital bank and further growing its core credit card business. Though some nagging near-term headwinds do persist, Capital One’s ongoing investment in modern technology capabilities could ultimately drive greater efficiency and enduring shareholder value creation over the longer term. Berkshire Hathaway boosted its holdings in COF stock by 25% to $1.34 billion.
With homebuilder stocks surging over the past year amid favorable housing market conditions, it’s certainly no shock that Warren Buffett has moved to snatch up shares of homebuilding names like Lennar (NYSE:LEN) lately. LEN stock vaulted over 40% higher over the past year, as the entire homebuilder group has shone brightly during that period. Though Buffett didn’t take as substantial a position in Lennar as some of the other homebuilder buys, it remains a compelling pure play on the ongoing major housing shortage in America.
According to its latest quarterly earnings release, Lennar saw Q2 revenue of $8 billion, which beat estimates by almost $800 million. While gross margins slid moderately from the unprecedented peaks achieved in the previous year, margins are gradually recovering now as Lennar has proactively cut costs and strategically stabilized home prices. Lennar’s management team expressed confidence on their earrings call that they can continue driving consistent financial performance and operational excellence from the business going forward. They remain laser-focused on maintaining healthy sales volume and pace while simultaneously maximizing returns and operational efficiency across the board.
With the ongoing major housing supply deficits likely continuing to support strong fundamental demand for the foreseeable future, perhaps Buffett sees potential for significant additional upside still ahead for this best-in-class homebuilder. He added $17.24 million of the stock to his holdings.
Rounding out Warren Buffett’s series of investments in homebuilder stocks recently is NVR (NYSE:NVR), which has also generated stellar returns for shareholders over the past year.
In its latest Q2 earnings release, NVR reported a 27% year-over-year increase in net new orders, showcasing the strength of current demand trends. While overall Q2 revenues dropped 12.5% annually, net income only fell by 7% annually as NVR’s profit margins generally held up quite well. Looking ahead, NVR continues directing its focus on key strategic initiatives like turning inventory faster, continuing to pay down debt, and repurchasing its own shares to further boost shareholder returns.
Admittedly, some lingering headwinds do persist for the housing sector, including still-high mortgage rates and intense inflationary pressures. However, strong fundamental demand combined with historically limited supply should allow efficient homebuilders like NVR to keep consolidating market share and generating impressive earnings in this constructive environment. While a potential recession could pose some risks, the company’s rock-solid balance sheet provides plenty of financial flexibility looking ahead.
Kraft Heinz (KHC)
If you have already seen Berkshire Hathaway’s portfolio additions, you may wonder where this came from since Berkshire Hathaway only reported five major buys in the recent report. It turns out the Oracle of Omaha has a ‘mystery’ portfolio worth $6.8 billion tucked away in a separate company, New England Asset Management. This allows him to build sizable positions in companies under the radar.
Starting with Kraft Heinz (NASDAQ:KHC), this was a surprising purchase, given its lackluster performance over the past few years. But upon closer inspection, I believe Buffett sees a compelling turnaround opportunity. Despite recent headwinds like supply chain challenges, KHC reported Q2 earnings that beat expectations.
Management emphasized their cost-savings initiatives are paying off, enabling them to ramp up critical brand investments in marketing and innovation. They expect improving volume trends in the back half as pricing moderates and new product launches gain traction. I’m encouraged by KHC’s renewed focus on revitalizing core brands through R&D. With the stock trading at an attractive forward price-earnings ratio of 11.5-times, this looks like a classic Buffett value play.
CMS Energy (CMS)
CMS Energy (NYSE:CMS) is a steady dividend payer that Warren Buffett likely sees as undervalued at current levels. The stock has drifted lower in recent months on macro concerns, but CMS offers stability with its focus on regulated utility operations.
The company’s Q2 results were acceptable, with adjusted earnings per share beating estimates. Management reaffirmed full-year earnings per share guidance toward the higher end of the range, signaling confidence in their financial plan. CMS also continues to progress on its clean energy transition, retiring legacy coal plants while adding renewable generation.
With CMS shares yielding 3% and trading at 18-times forward earnings, the current valuation leaves room for upside.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.