Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has a stock portfolio worth about $300 billion, with many of its positions selected by legendary investor Warren Buffett himself. To be fair, there's a solid long-term investment case to be made for most, if not all, of them.
Having said that, some look more attractive than others right now. Here are two that trade for exceptionally cheap valuations, despite having excellent growth potential in 2025 and beyond.
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Buffett's only small bank stock
Warren Buffett has been a fan of the banking industry for many years, and some of his largest stock investments are banks, including Bank of America (NYSE: BAC) and American Express (NYSE: AXP). However, there's only one relatively small U.S. bank stock you'll find in the portfolio: Ally Financial (NYSE: ALLY).
Ally is primarily an auto lender and was spun off from General Motors (NYSE: GM). It also has a large retail banking platform, with over $140 billion in customer deposits.
Recently, Ally decided to simplify its business. It has agreed to sell its credit card business, and it stopped making mortgage loans in January, choosing to focus on what it does best -- auto lending, auto insurance, and consumer banking.
Because auto loans have relatively high interest rates (9.09% yield on average), there's the potential for excellent margins. Ally does a great job of maintaining strong loan quality, and it could be a big winner as interest rates gradually come down and its deposit cost starts to decrease. With shares trading for just over 10 times forward earnings, and with a 3.2% dividend yield, Ally could be a no-brainer Buffett stock to look at more closely.
A legal monopoly with an eye on growth
SiriusXM (NASDAQ: SIRI) isn't just a Berkshire stock holding -- it's one of the few stocks Berkshire has actually been buying in recent quarters. After a series of additions to its position, Berkshire now owns a staggering 35.4% of the satellite radio leader.
SiriusXM has fallen by about 50% over the past year, and for some good reasons. There are major worries about a declining subscriber base and lack of growth. The company's subscriber base peaked nearly six years ago, and revenue is expected to decline in 2025.
However, SiriusXM's management is well aware of the issues and is making big moves to turn things around. It is leaning into its advertising business in a few ways, including the launch of a free ad-supported product tier. It's also taking steps to capitalize on its core market of new car buyers, such as with its three-year, dealer-paid subscription program that is gaining traction. Management hopes to add 10 million new subscribers and to grow free cash flow by 30% by 2027, compared to expected 2025 levels.
With a valuation of just 7.6 times its expected 2025 free cash flow, a 4.1% dividend yield, and an improving balance sheet, SiriusXM makes a lot of sense from a risk-reward standpoint at the current price.
Buy for the long term
To be perfectly clear, I think both of these stocks look like excellent opportunities in 2025, but I have no idea what their stock prices are going to do over the next few weeks or months. Instead, I'm saying that the current valuations look like attractive entry points for patient investors who plan to hold their stocks for several years at a minimum. That's why Warren Buffett and his portfolio managers choose stocks, so keep this in mind when deciding if they're right for you.
Should you invest $1,000 in Ally Financial right now?
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American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Ally is an advertising partner of Motley Fool Money. Matt Frankel has positions in Ally Financial, American Express, Bank of America, Berkshire Hathaway, and General Motors. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
