The new year can be a time to reevaluate your portfolio. Did you buy too many high-risk stocks that did poorly in 2024? Now is the perfect time to switch things up and build a durable portfolio that can sustain and grow your wealth over the long haul.

Many of us wait for the new year to invest more money into our retirement accounts. Maybe you had a nice bonus at the end of 2024 that you want to tuck away as savings. If you have $10,000 ready to invest in 2025, there are plenty of cheap-looking stocks you can buy and hold for the long haul.

Here are three stocks legendary investor Warren Buffett owns at Berkshire Hathaway to buy in 2025.

1. American Express: A durable credit card giant

One of Buffett's largest and longest-held positions is American Express. The credit card giant has been a fantastic long-term performer, especially since Buffett started buying it in 1991. With its vertically integrated payments network, American Express has a competitive position over other credit card companies. And with big travel perks like travel lounges, hotel deals, and cash-back savings with partners such as Uber, American Express has an enviable position with wealthy clients around the world.

This value proposition is why American Express should durably grow over the long haul, and why Buffett has never sold a share since initially buying the stock. The brand continues to add new credit cards to its network — 3 million added last quarter alone — which will drive more spending and profits over the long term.

Management sees revenue growing 10% annually and earnings per share (EPS) growing even faster. Today, the stock trades at a price-to-earnings ratio (P/E) of 23. That's slightly above the company's long-term average, but is still attractive for a business that plans to grow EPS at the mid-teens level annually. Buy some American Express stock for your portfolio in 2025 and sit tight with the position.

2. Occidental Petroleum: US fossil fuel production

The world still consumes oil and natural gas. Fossil fuels have been a big part of our energy picture and will be for decades. Even places like Norway — which has rapidly adopted electric vehicles — still consume similar levels of oil compared to a few decades ago.

The United States is far behind in electric vehicle adoption and is in a transition of rapid industrial build-out due to the government's reshoring policy. One big beneficiary of these trends should be Occidental Petroleum, one of the largest oil and natural gas producers in the United States. Last quarter, the company was producing 1.4 million barrels of oil (or natural gas equivalent) per day, which was a record. Even with oil prices well below highs set a few years ago, Occidental Petroleum generated $1.5 billion in free cash flow last quarter.

Over the last 12 months, Occidental Petroleum has generated $4.5 billion in free cash flow. This looks rather cheap versus a market cap of $49 billion, and likely why Buffett has piled into the stock. Unless oil prices crash, this stock will do well over the long term and can be a permanent energy hedge for your portfolio in 2025 and beyond.

AXP PE Ratio data by YCharts

3. Ally Financial: Banking for the 21st century

The last stock on my list is a lot smaller than Occidental Petroleum and American Express, making it a smaller position in the Berkshire Hathaway portfolio. Still, the conglomerate is the company's largest shareholder and owns around 10% of its common stock. Enter Ally Financial, one of the largest digital banks in the world.

Spun out from General Motors during the financial crisis, the automotive lending giant turned itself into an online-only consumer bank, with over $100 billion in deposits. Customers have flocked to the bank because of the high interest rates it pays on deposits, something legacy banks can't match with higher overhead costs.

Investors are tepid about Ally Financial because of rising loss rates in the automotive sector and the headwinds presented by rising interest rates on its loan book. With the Federal Reserve lowering interest rates and the automotive sector stabilising, I think Ally Financial can get back on the right footing in 2025. Buffett and his team likely agree, which is why they haven't sold a single share during this downturn.

As of this writing, Ally Financial has a P/E of around 15 based on a net income figure that is well off of its all-time high. As earnings recover in 2025 and 2026, Ally's P/E should shrink to dirt-cheap levels, which will likely lead to a rising stock price, rising dividend payouts, and share repurchases. This formula should make investors who buy and hold Ally stock quite happy over the long haul.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Warren Buffett is one of the greatest investors of our time and his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), regularly beats the S&P 500, a broader benchmark for the market, on annual performance. One of the ways Buffett and Berkshire are able to do so is through Berkshire's massive $345 billion equities portfolio, from which Buffett and the rest of his team purchase and sell select stocks.

Buffett has long been known as a value investor. He tries to find stocks that are trading below their intrinsic value and that the market missed or simply ignored. Over time, value investors believe these stocks will appreciate nicely as the market wakes up and takes notice.

Considering how successful Buffett has been with this strategy, let's look at five value stocks the Oracle of Omaha currently owns and see if they have helped his business succeed.

1. HP

Known as the original start-up out of Silicon Valley, HP (NYSE: HPE) has been making computers and printers for decades. While the company may not be seen as the innovator it once was, HP has become a stock that traditional investors have warmed up to for the basic reason that it prints plenty of cash profits and uses that to pay shareholders.

For fiscal 2022, HP is projecting free cash flow of between $3.2 billion and $3.7 billion. The company is also on track to return more than $5 billion to shareholders through dividends and share repurchases in the current fiscal year. With an annual dividend yield of close to 3.4%, HP stock trades at just over five times earnings.

2. Citigroup

After investing in nearly every other large US bank over the past few decades, Buffett and Berkshire purchased a nearly 3% stake in the embattled bank Citigroup (NYSE: C) earlier this year. Citigroup is an obvious value play, with its stock trading at just 60% of its tangible book value, or net worth. Shareholders are right to question the stock at the moment after the company has been dealing with regulatory issues regarding its risk management and internal controls, and after years of lagging returns.

But now, CEO Jane Fraser, who took over Citigroup in early 2021, commenced a big transformation plan which includes selling off most of the bank's international consumer banking operations. This will make the bank simpler and focus on higher-performing businesses. Citigroup still has a lot of work to do, but if management can clean up the regulatory issues and create a more focused operation, getting back to full tangible book value should be quite doable. While Buffett waits, Citigroup is paying an annual dividend yield in excess of 4%.

3. Kraft Heinz

The multinational food and beverage company Kraft Heinz (NASDAQ: KHC) is often referred to as Buffett's biggest mistake. Berkshire teamed up with 3G Capital in 2013 to purchase Heinz for $23 billion. They would eventually merge the company with Kraft in 2015, at which time shares opened around $71.

Today, shares sit at $38, so Berkshire has lost a good deal of money on the investment. Still, Berkshire continues to own more than 26% of the company. Kraft Heinz still has nearly $19.3 billion of long-term debt, but management made some serious progress in reducing that debt, grew free cash flow in recent years, and it also pays more than a 3% dividend yield.

4. Ally Financial

The large digital consumer bank Ally Financial (NYSE: ALLY), which specializes in auto lending, is another bank Buffett is purchasing stock in while its below tangible book value, and which pays an extremely healthy dividend yield of roughly 4.6%. Ally took off during 2020 and 2021, as the chip shortage and lack of auto inventory led to high car prices and huge demand, particularly among vehicles, enabling Ally to strongly grow its retail auto loan book.

But investors are now concerned about loan losses as consumer finances get drained and as many expect a recession next year. Ally is still originating auto loans -- and at very high yields -- and management seems to be taking a conservative approach to credit. If loan losses don't exceed management's built-in expectations, then I'd suspect Berkshire has a winner here.

5. Jefferies Financial

Berkshire recently unveiled its small purchase of shares in investment bank Jefferies Financial (NYSE: JEF) during the third quarter. Similar to Citigroup and Ally, Jefferies also has an attractive valuation, trading just over tangible book value. The bank also pays out more than a 3% dividend yield.

The broader investment banking sector struggled this year, as equity and debt underwriting significantly slowed down in the face of falling equity valuations and market volatility. But Jefferies is reportedly gaining market share and Berkshire and Jefferies own a mortgage business together, so Berkshire likely got to know management pretty well.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This year has been challenging for investors, with the S&P 500 and the Nasdaq Composite indexes slipping into bear markets. Persistent inflation and rising interest rates have taken center stage, dragging down nearly all asset classes.

A bear market can be a scary time for investors. Nobody likes seeing their portfolio going down. However, at times like this, it helps to think like Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett.

Buffett achieved his (and Berkshire's) decades-long success by thinking about the long term and owning companies (or stocks in companies) for years or even decades. you would do well to follow his investing techniques and focus on quality companies, building up your positions slowly rather than trying to time a market bottom. Bear markets offer opportunities to buy stocks at discounted prices, and two Buffett stocks you could invest $1,000 in today that trade at a discount are Visa Inc. (NYSE: V) and Ally Financial (NYSE: ALLY). Let's take a look at why these two Buffett stocks are great long-term investing options.

1. Visa

Visa helps people in more than 200 countries move their money via debit cards, credit cards, and other payment products. Nearly 49% of American adults had a Visa card as of 2020, while about 39% have a Mastercard Incorporated (NYSE: MA) and 15% have an American Express Company (NYSE: AXP). This gives Visa a sizable lead in the payment-processing space: In 2020, the company processed a total volume of $11.4 billion, outpacing Mastercard and American Express, which processed $6.3 billion and $1 billion, respectively.  

The payment company has a sizable lead over the competition because of its widely accepted cards. Not only that, but Visa continues to innovate and expand its offerings to stay ahead of the competition.

Its business model is relatively asset-light, meaning the company doesn't need to invest much of its capital in assets. As a result, Visa has very high profit margins, averaging 44% over the past decade. It's also a money-making machine, generating over $16 billion in free cash flow over the past year. The company can use this cash to make acquisitions, pay dividends, or buy back its stock.

Data by YCharts.

Visa stock has performed well, and in the first nine months of its fiscal year, its net revenue was up 22.6%, and net income grew by 26%. The company keeps performing despite high levels of inflation, which CEO Al Kelly has said, "net-net, historically, inflation has been a positive for us." Because the company earns fees as a percentage of payment volume, rising costs of goods and services increase transaction size, helping Visa rake in more fee income.  

Visa's long-term prospects look bright. According to a study by BlueWeave Consulting, the global digital payment marketplace will grow 12% annually through 2028. However, it does face increasing competition from the likes of PayPal Holdings, Inc. (NYSE: PYPL) and major banks from their money transfer service, Zelle.

To protect its top spot, Visa has acquired fintech partners that enhance its existing business. It looked to break into the open banking space by buying Plaid for $5.3 billion in 2020. However, regulators shot down the deal, and Visa instead acquired Tink for $2.1 billion, an open banking network in Europe.

Open banking could be the future of finance. According to Allied Market Research, the open banking market allows nonbank companies to build financial products and is projected to grow at 22% annually through 2032. By acquiring Tink and staying one step ahead of the competition, Visa is in an excellent position to continue delivering for its investors.

2. Ally Financial

Ally Financial is an all-digital consumer bank that specializes in automotive lending. Warren Buffett increased Berkshire's stake in the bank in the second quarter by buying 21 million shares. Berkshire's $1 billion stake gives Buffett and Berkshire over 9% ownership in the bank. Ally Financial trades at a low valuation, and its price-to-tangible-book-value ratio of just 0.93 is likely one reason Buffett upped Berkshire's stake.

The bank benefited from shortages in used cars in the past couple of years, which increased the costs of used vehicles. In the second quarter, the bank originated $13.3 billion in auto loans, its highest quarter of originations since 2006.  

Ally also benefited from higher interest rates. The Federal Reserve has raised its federal funds rate from near 0% to 2.5% since March, pushing funding costs up for all loans. Ally's net interest margin, the difference between the interest it earns on its loans and the interest it pays on deposits, improved from 3.55% last year to over 4% in the second quarter.  

Ally Bank has benefited from being one of the first all-digital banks, with its deposit customers growing 20% annually since it was founded in 2009. According to Allied Market Research, the digital banking market is forecast to grow at 13.6% annually through 2027. Ally believes its purpose-driven culture will help it continue to grow in the digital banking space. This, coupled with the bank's growing suite of products like Ally Invest, its brokerage product, and Ally Lending, should provide it with multiple avenues of growth in the coming years.

Another thing to like about Ally is how much cash it returns to its shareholders. This year the bank has spent $1.2 billion buying back its stock and paid out another $259 million in dividends. Ally stock trades below book value, giving the stock a good margin for safety, and its dividend yield of 3.56% makes it a solid investment for those looking for passive income.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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2022 has been a challenging year for investors, with a bear market fueled by surging inflation and stalling economic growth. However, long-term thinkers are seeing the current economic uncertainty as an opportunity and aggressively picking up fundamentally strong businesses at steep discounts.

Warren Buffett has been one of the brightest minds on Wall Street for decades. Hence, the entire market has a keen eye on Berkshire Hathaway's (NYSE: BRK-B) portfolio to see what Buffett and his investing team are buying and selling.

As per its recent 13F filing, Berkshire Hathaway has increased its stake in Activision Blizzard (NASDAQ: ATVI) and Ally Financial (NYSE: ALLY). Here's why I think both of these stocks could be solid long-term investments.

Activision Blizzard

Activision Blizzard owns some of the largest gaming titles in the world, such as Diablo, World of Warcraft, Call of Duty, and the mobile game Candy Crush. 

Back in January, Microsoft announced its intention to acquire the company for $95 per share, but at recent prices, Activision Blizzard's stock was trading around $80, almost 16% lower. The discount can be attributed to the Federal Trade Commission's (FTC) ongoing regulatory review of the proposed deal. However, this price gap may soon close. Per Dealreporter, Microsoft seems to have complied with the FTC's second request for certain documents as part of the assessment of this deal. This is seen as a major milestone for the merger, considering that the agency has to complete the review of the deal within 30 days after the buyer and seller comply the second request for data.

Buffett has long been poised to take advantage of this situation; Berkshire added substantially to its Activision Blizzard position in the first quarter and increased its stake from 64.3 million shares to 68.4 million shares in the second quarter.

However, even if the deal does not go through, Activision Blizzard's financials are quite strong. The company's revenue and net income rose 8.9% and 22.8%, respectively, in 2021 despite strong prior-year comps. The company earned nearly 73% of its revenue from in-game purchases and gaming subscriptions in the second quarter (ending June 30), thereby reducing its reliance on the success of any single gaming title. The company has a strong balance sheet, evident by its net cash position of $7.1 billion.

Activision Blizzard is also gearing up for new versions of already famous gaming titles in the coming quarters, such as Call of Duty: Modern Warfare II, Call of Duty: Warzone 2.0, World of Warcraft, and Overwatch 2. Thanks to its strong fan base (361 million monthly active users in the second quarter), these new launches can significantly boost both product sales and in-game purchases of Activision Blizzard in future quarters.

Ally Financial

Shares of Ally Financial, an online bank focused on auto lending, are down by 25% so far this year on fears of reduced car demand and declining used car prices in a recessionary environment. Analysts and investors are worried about the potential decline in credit quality and a rise in delinquency rates in the coming quarters. These fears are well founded since the company's 30-plus-day retail auto delinquency rate jumped from 2.02% in the first quarter to 2.52% in the second quarter (ending June 30). The rapid rise in benchmark interest rates has also resulted in worries about an increase in the company's cost of capital since retail deposits make up almost 90% of the bank's funding sources.

Despite these cons, there are several pros that make it worthwhile to consider buying this stock now. Ally Financial has relationships with 22,400 U.S. auto dealers. This broad and deep dealer network is not only a major driver for loan originations but also a key entry barrier for competition. The company reported a 3% year-over-year increase in retail auto loan applications, which is impressive considering overall auto industry sales were down 19% year over year in the second quarter. With a major chunk of loan applications stemming from higher-income groups, loan default risk is significantly reduced.

Ally Financial reported $13.3 billion in auto loan originations in the second quarter, the highest quarterly level reached since 2006. The company expects demand to remain strong in the auto market at least in the short run since 4 million to 5 million consumers are estimated to have not been able to purchase vehicles due to inventory shortages.

Besides auto lending, Ally Financial also offers other financial services such as mortgage finance, credit cards, and brokerage services. This has opened up several cross-selling opportunities to its existing auto loan user base.

Ally Financial is also quite cheap, trading at 5.06 times earnings, the lowest it has been since the pandemic-driven market crash of early 2020. The stock is also trading at a significant discount to the financials sector average around 14 and the U.S. market average of 25..

In the second quarter, Berkshire Hathaway increased its stake in this leading auto lender from 9 million shares to 30 million shares. Considering Ally Financial's strong growth prospects and low valuation, this could prove to be an attractive investment for Buffett and those of us who look to him for ideas.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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tIn the first quarter of the year, Warren Buffett and his company Berkshire Hathaway (NYSE: BRK-B) initiated a small stake in the digital consumer bank Ally Financial (NYSE: ALLY), which is also a big auto lender. In the second quarter of the year, Berkshire more than tripled its position in the stock, purchasing more than 21 million shares in the quarter. Now, Berkshire's position in Ally amounts to 30 million shares valued at more than $1 billion, representing nearly 9% of the company. With Buffett and Berkshire buying heavily now, is Ally a buy? Let's take a look.

Wall Street has grown bearish

Interestingly, Buffett is piling into Ally as the Street is growing more bearish. After a strong second-quarter earnings report, a number of analysts downgraded the stock on concerns regarding funding and credit quality.

Ally has been bolstered in recent years by a shortage of car inventory and elevated car pricing and interest rates, which have boosted financial results. Ally's retail auto loan portfolio at the end of the second quarter reached more than $82 billion, up 8.4% on a year-over-year basis. As the Federal Reserve has hiked interest rates, margins have also expanded significantly.

This has helped Ally generate a core return on tangible common equity (ROTCE) of more than 23% in the second quarter, which is superb. Furthermore, management said on Ally's second-quarter earnings call that they have been originating auto loans at an 8% yield in the third quarter while still maintaining their underwriting standards.

But analysts are worried about what will happen when car prices normalize, and how consumers will fare now that stimulus programs have winded down and economic conditions are more difficult. In the second quarter, Ally saw 30-day delinquencies in its retail auto portfolio jump by 0.50%. Also in the quarter, Ally started to see its deposit costs climb, which will keep climbing this year along with interest rates and could begin to cut into the bank's margins.

Why is Buffett buying?

Let's remember a few things when we talk about Buffett and Berkshire's investing philosophy: They both like to invest on a long-term basis and they both know the car business quite well.

Berkshire first invested in General Motors (NYSE: GM) in 2012, although it actually trimmed its position in the company in the second quarter. Ally was a financing division of GM called the General Motors Acceptance Corporation up until 2006, when GM sold a controlling interest in the company. Eventually, General Motors Acceptance Corporation would apply for a bank charter and rebrand into Ally. 

Ally's management team does seem prepared for the normalization of auto prices and said they have assumed that used car prices, which are up 60% since 2019, will come down by 30% from the end of 2021 and 2023. The bank is also reserving for future losses prudently when you consider it is still not seeing huge cracks in credit quality just yet.

In addition, Ally has also done a much better job of improving its funding base and relationship with customers. In 2018, only 64% of its funding base came from deposits. Now, more than 85% of its funding comes from deposits. Also, Ally now offers mortgages, credit cards, point-of-sale lending, and wealth management, all of which can help create better relationships with consumers and hopefully lead to more primary banking relationships and a higher-quality deposit base. Ally's deposit costs are still fairly high compared to other large banks, but it seems like the company has really improved this aspect of the business and can continue to do so.

Finally, Ally believes its returns are going to continue to be higher post-pandemic. Prior to the pandemic, the company would at best generate a 12% ROTCE. Now, management has guided for a 16% to 18% ROTCE in 2022 and on a medium-term time horizon.

A value play for Buffett

Buffett and Berkshire have long been value investors, and Ally gives them the opportunity to purchase an asset that they believe is trading for less than its fair value. Ally currently trades at about 105% to its tangible book value or net worth, and at about five times forward earnings.

Companies generating and guiding for the kind of returns that Ally is would normally trade at a much higher valuation, so the market is clearly skeptical of how sustainable the returns are. But Buffett and Berkshire clearly like the risk-reward setup here, which I think is favorable considering Ally's low valuation. Ally also pays an annual dividend yield in excess of 3% and buys back a lot of stock, two other things Berkshire and Buffett find attractive. Overall, I agree with Buffett and Berkshire and do think Ally is a buy at these levels.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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