Warren Buffett needs little introduction.
The Berkshire Hathaway (BRK.A 1.88%) (BRK.B 1.88%) CEO is regarded as the greatest investors of all time, and it's clear why. His conglomerate has doubled the annual return of the S&P 500 index over a nearly 60-year career, averaging 19.8% compared to 9.9% for the broad-market index.
Buffett is also admired because thousands of investors have gotten rich with him simply by buying and holding shares of Berkshire Hathaway. Any investor can follow along with Berkshire's investment as well, as the company reports its stock holdings every quarter.
Keep reading to see two Buffett stocks worth buying now.
Image source: Motley Fool.
1. Citigroup
Buffett is a longtime fan of the finance and insurance sector, and the company has a number of wholly owned subsidiaries in that sector, including GEICO, in addition to several bank stocks in its portfolio.
Some observers were surprised when Berkshire revealed a stake in Citigroup (C 6.49%), but the move made sense as Buffett has had success with betting on undervalued banks in the past. Citigroup has been in the midst of a long restructuring effort, and Buffett recently met with Citigroup CEO Jane Fraser to encourage to her continue with the restructuring, which includes 20,000 job cuts the company announced.
Those restructuring efforts should eventually pay off as Citi's problem seems to be due to a history of poor management, which can be fixed. Citi remains one of the big four banks with a vast network of branches, ATMs, and credit card relationships that help give it competitive advantages and establish barriers to entry.
Citi's recent fourth-quarter results were disappointing and included a $1.7 billion FDIC special assessment to boost its coffers following the regional banking crisis, and a $1.3 billion charge related to risks in Russia and Argentina. However, there are signs that the company is turning the corner. Citigroup finished the fourth quarter with a 13.3% Tier 1 capital ratio, showing it's well prepared to absorb a possible recession, and it's growing its tangible book value per share, which was up 6% to $86.19.
Based on that value, the stock trades at a price-to-tangible book value of 0.6, and its dividend remains well funded and has an appealing yield of 4.1%.
The weak performance in 2023 should also help with comparisons in 2024, as should the recent cost cuts. The bar is still low for Citigroup, and if the economy starts to rebound, the stock could have a lot of room to run.
2. D.R. Horton
Berkshire Hathaway also bought a number of homebuilder stocks, and D.R. Horton (DHI 1.57%), the country's biggest homebuilder, looks well positioned to keep growing in 2024.
The macro-level environment continues to favor homebuilders as high mortgage rates have cooled off demand, and current homeowners are reluctant to sell and lose out on their low mortgage rates. For example, existing home sales fell to their slowest pace in 28 years last year.
As a result, prospective homebuyers are turning to homebuilders like D.R. Horton, and the company is reporting bumper profits. Revenue rose 9% to $10.5 billion in its fiscal fourth quarter, and the company posted an operating margin of 19%, giving it $2 billion in operating profit.
In its initial guidance for 2024, the company is calling for modest top-line growth, and sales orders were up 39% to $7.3 billion, showing demand remains strong. D.R. Horton also raised its dividend by 20% to $0.30 a quarter, though its dividend yield is modest at less than 1%.
The company should also benefit from a key structural tailwind as there's an estimated shortage of 4 million homes in the U.S., which should help drive demand for new homes over the long term.
Finally, D.R. Horton trades at a low price-to-earnings ratio of 11, setting the company up to reward investors with share repurchases, as it's adopted an asset-light approach that should enable it to expand to fill demand without much additional capital.
With a low valuation, strong demand, and structural tailwinds, D.R. Horton should continue to deliver strong returns over the coming years.
