The Best Warren Buffett Stocks to Buy With $1,000 Right Now

Key Points

• Berkshire’s homebuilder stocks are new additions to the portfolio, and for good reasons.

• Ally Financial could be a strong buy before interest rates fall.

• Berkshire Hathaway itself looks like a bargain stock right now.

• 10 stocks we like better than Berkshire Hathaway ›

After making several additions to the company's massive stock portfolio in the second quarter, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) owns shares of nearly 40 publicly traded U.S. companies. And to be sure, there's a solid case to be made for buying most of them. After all, CEO Warren Buffett and his team focus on companies with stable cash flow, durable competitive advantages, and reasonable valuations.

However, some of Berkshire's stocks look more attractive right now than others. If I were to put $1,000 to work in Buffett stocks today, here's what I would buy.

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Buffett just bought these stocks, and it's easy to see why

In Berkshire's recent 13F filing with the SEC, we got a glimpse of what Buffett and his team bought and sold in the second quarter. And two of the six new positions that were initiated are homebuilders -- Lennar (NYSE: LEN) and D.R. Horton (NYSE: DHI), to be exact. And it's worth noting that Berkshire already has a small position in NVR (NYSE: NVR), another major homebuilder best known for its Ryan Homes brand.

To be perfectly clear, we have no idea if it was Buffett himself who made these investments. And because of the position size, they likely came from investment managers Ted Weschler and Todd Combs. But there are some good reasons why homebuilders could be an attractive investment right now.

In simple terms, the real estate market has been agonizingly slow. Homebuilders have fared better than many had expected, thanks to their ability to control inventory and offer incentives, but there are a lot of would-be homebuyers who are staying on the sidelines due to high mortgage rates.

Currently, the homebuilders trade for extremely low valuations. Lennar and D.R. Horton have P/E ratios of just 11.1 and 12.7, respectively, far below the S&P 500 (SNPINDEX: ^GSPC) average. And as rates (hopefully) start to come down, we could see a lot of pent-up demand come back into the market.

A lot to gain in a falling-rate environment

Ally Financial (NYSE: ALLY) is one of Berkshire's largest financial sector investments by percentage ownership. As of the latest information, Berkshire owns 9.4% of the auto lending-focused online bank, a stake worth about $1.1 billion.

For the time being, Ally's business is doing fine. It is nicely profitable, producing strong returns on equity, and received 3.9 million auto loan applications in the second quarter -- an all-time high for the company.

Ally could be one of the biggest winners in Berkshire's portfolio in a falling-rate environment. For one thing, lower interest rates would likely lead to a surge in auto financing demand. In addition, as an online bank offering high-yield deposit products, lower rates would reduce Ally's deposit costs significantly, which would lead to net interest margin expansion.

Net interest margin has already been trending in the right direction. Over the past year, Ally's NIM has increased by nine basis points thanks to lower deposit costs related to the Fed's late-2024 rate cuts. And if rate cuts resume, we could see more upward pressure on margins.

Are these the best Buffett stocks to buy right now?

As mentioned, there are solid cases to buy pretty much every stock in Berkshire's portfolio, and in full disclosure, I own several others, including Bank of America (NYSE: BAC) and SiriusXM (NASDAQ: SIRI). But with the Federal Reserve looking more likely to cut interest rates at the next policy meeting, these two homebuilder stocks could be particularly interesting opportunities for investors to take a closer look at right now.

Ally is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Matt Frankel has positions in Ally Financial, Bank of America, Berkshire Hathaway, and Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway, D.R. Horton, Lennar, and NVR. The Motley Fool has a disclosure policy.