Every investor has stars and duds in their portfolios. Even Warren Buffett is in the group. The good news is, in Buffett's own words, "Over time, it takes just a few winners to work wonders."
Still, it certainly helps to boost your returns if you gravitate toward the stars and stay away from the duds. This applies to stocks in Buffett's Berkshire Hathaway portfolio, too. Here are two Buffett stocks to buy hand over fist and one to avoid.
Buy No. 1: Amazon
If I had to pick the most impressive company Buffett owns a stake in, it would probably be Amazon (AMZN -1.45%). The company has transformed how we shop and how businesses handle technology.
Buffett hasn't bought additional shares of Amazon in quite a while. However, I view the stock as a great pick right now for two primary reasons.
First, Amazon's profitability and free cash flow continue to rise significantly. When a company's earnings more than triple year over year, as Amazon's did in Q1, it's on the right track. Even better, Amazon's free cash flow went from negative $3.3 billion over the 12 months ending March 31, 2023 to positive $50.1 billion over the 12 months ending March 31, 2024.
Second, Amazon has a massive growth opportunity, thanks to the soaring use of artificial intelligence (AI). Amazon Web Services (AWS) is the largest cloud services provider. Organizations should continue to migrate rapidly to the cloud to build and deploy AI apps. AWS stands to be one of the biggest beneficiaries of this trend.
Buy No. 2: DaVita
You might be surprised that DaVita (DVA -0.80%) ranks as one of Buffett's biggest winners so far in 2024. Shares of the kidney dialysis services provider have soared around 36%.
This sizzling performance doesn't necessarily mean DaVita will keep the momentum going. However, I think it can.
Despite the strong gains, DaVita still sports a reasonable valuation. Its shares trade at a forward price-to-earnings ratio of only 15.4. That's much lower than the S&P 500's forward earnings multiple of 21.3 and the healthcare sector's multiple of 18.9.
DaVita also has a clear path to delivering further growth. In March, the company struck a deal with Fresenius Medical Care to buy its businesses in Brazil, Chile, Colombia, and Ecuador. These acquisitions will make DaVita the biggest dialysis services provider in Latin America.
One Buffett stock to avoid: Liberty Formula One
Berkshire Hathaway owns several Liberty Media tracking stocks. I think investors will be better off avoiding one of them: Liberty Formula One (FWON.A -1.20%) (FWON.B -3.84%) (FWON.K -1.41%). While Buffett's portfolio only includes the Series C shares that trade under the FWON.K ticker, investors should also stay on the sidelines with the Series A shares trading under the FWON.A ticker and the Series B shares trading over the counter under the FWON.B ticker.
Liberty Formula One is the tracking stock for Liberty Media's interests in the Formula One Group. This group operates Formula 1 racing and Quint, which sells tickets to sporting and other events (including Formula 1 races).
Sure, Formula One Group's revenue jumped 54% year over year in the first quarter of 2024 to $587 million. The unit also hopes to close on its acquisition of MotoGP by the end of this year.
However, the stock trades at a sky-high 48 times forward earnings. There's also less visibility into the underlying business than you'll find with most stocks Buffett owns.
Indeed, Liberty Media acknowledged in its Q1 regulatory filing that the historical financial information of Formula One Group might not reflect the results if it were a separate company. I doubt Buffett would invest Berkshire's money in this stock if it were not part of Liberty Media.
