Warren Buffett has built incredible wealth for himself and shareholders of Berkshire Hathaway. He has the ability to spot value that others miss, but most importantly, he has the temperament and patience to go against the crowd. Market volatility doesn't faze him, because he focuses on the long-term value of the business.
Berkshire's stock portfolio is full of strong businesses that can grow your savings over time. Here's why three Motley Fool contributors believe Amazon (AMZN 0.01%), T-Mobile US (TMUS 1.50%), and Ulta Beauty (ULTA -3.07%) are great buys to start 2025.
A solid growth investment
John Ballard (Amazon): Berkshire Hathaway has held a position in Amazon since 2019, and it still held 10 million shares at the end of the third quarter of 2024. Amazon's strength in several areas of its business makes it one of the best growth stocks to consider holding in 2025 and beyond.
Amazon's online and physical stores generate less than half of the company's $620 billion in trailing-12-month revenue. Its online store is growing sales at single-digit rates right now, but management's efforts to lower costs, including the use of more automation in fulfillment centers and shortening delivery distances to customers' doorsteps, are boosting profits. In the last quarter, Amazon's operating profit grew 55% year over year to $17.4 billion.
Most of Amazon's operating profit still comes from its fast-growing cloud services division, Amazon Web Services (AWS). Revenue from AWS accelerated in 2024, as demand for AI services continued to ramp up. There's a tremendous long-term opportunity in the $300 billion cloud market, and Amazon is the leader.
Other non-retail services also continue to grow at healthy rates and fuel Amazon's profit growth, including advertising and third-party seller services. However, a key sign of Amazon's growing appeal to consumers is the 11% year-over-year growth in sales from subscription services last quarter, which includes Prime and other entertainment offerings. Amazon is clearly continuing to attract more customers to its ecosystem of services, which bodes well for its position in a competitive marketplace.
The stock has had a nice run over the last few years, but its progress in improving margins and continuing to attract corporate customers to AWS should deliver attractive returns for Amazon investors in 2025 and beyond.
A telecom champ
Jeremy Bowman (T-Mobile): 2025 could be a tumultuous year on the stock market. President-elect Donald Trump seems likely to shake up markets with tariffs and other policy changes, and artificial intelligence has led to inflated valuations across the S&P 500.
Against that backdrop, a classic Buffett strategy would be to invest in a stable, cash-flowing, dividend-paying stock, and one of the best out there right now is T-Mobile.
T-Mobile competes in what's essentially a triopoly with AT&T and Verizon Communications in telecom. The industry has high barriers to entry, stable cash flows, and it provides a service that won't easily be disrupted, all things that Buffett looks for in a stock.
To boot, T-Mobile has outperformed AT&T and Verizon, by avoiding the mistakes its two rivals have made, and made smarter strategic decisions with spectrum. As a result, the stock has soared in recent years, while its two biggest competitors have flatlined.
In its third quarter, the company continued its industry-leading performance with service revenue up 5% to $16.7 billion, and postpaid service, or monthly contract revenue, up 8% to $13.3 billion. It also topped the industry with postpaid net account additions of 315,000 and postpaid net customer additions of 1.6 million.
T-Mobile continues to expand margins, a benefit of growing in an industry with high fixed costs, as net income jumped 43% in the quarter to $3.1 billion.
That trend should continue into 2025 as the company has more financial flexibility with less debt than AT&T and Verizon, making it better positioned for acquisitions, and it leads the industry in 5G coverage, making its network the most attractive.
With a dividend yield of 1.7% and a track record of share buybacks, T-Mobile looks like an excellent Buffett stock to own for 2025.
A top stock to buy on the dip
Jennifer Saibil (Ulta Beauty): Ulta is one of Buffett's newer buys, and he's already sold off most of it. Berkshire Hathaway first took a position in Ulta in the 2024 second quarter, and it sold 96% of that position in the third quarter. Ulta stock now accounts for just over $10 billion and represents a minuscule percentage of the total equity portfolio.
Does this mean Buffett has no confidence in Ulta? He hasn't said anything about it, so investors don't really know. The sale implies that at present, the larger stake in Ulta doesn't fit Berkshire Hathaway's needs or goals. But since it still held onto a piece of it, I think investors can infer that he does have confidence in the company.
Ulta stock performed poorly in 2024, losing 11% of its value while the S&P 500 gained 25%. It's operating in a challenging environment, and what's usually a plus for it became a minus. What I'm referring to is its model of offering everything a beauty enthusiast could want, from mass products to luxury goods. It merged the two when it developed its beauty mega-stores, whereas previously, customers could only get mass beauty products at pharmacies or similar stores and luxury merchandise at department stores.
In good times, it attracts all kinds of customers, who do all their beauty shopping under Ulta's many roofs. But in pressured times, like the past year, customers switch down from luxury brands to cheaper ones, if they're spending on extras at all.
It's been a rough year for Ulta. In the fiscal 2024 third quarter (ended Nov. 2), sales crept up 1.7%, and comparable sales increased just 0.6%. Investors have been more concerned about the operating margin, which contracted from 13.1% last year to 12.6% this year in the quarter.
Why can it do better in 2025? First of all, it just got a new CEO. Former chief operating officer Kecia Steelman is stepping into the lead role, and she's a company veteran who can bring an informed view to the table. As inflation moderates, customers may be ready to start spending more, and they're likely to do it at their favorite beauty store. And the operating margin is the lowest it's been since the height of the COVID-19 pandemic.
Any improvement or better-than-expected performance should give the stock a boost. 2025 could be a big turnaround year at Ulta, but more importantly, the long-term outlook is strong. It's still generating higher sales and maintaining profitability, opening new stores, and attracting loyal fans. This is an opportunity to buy it on the dip.
