2 Historically Cheap Warren Buffett Stocks to Buy With Confidence in February, and 1 to Avoid
2025.02.03
For the better part of 60 years, Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett has been running circles around Wall Street. Though Berkshire's stock isn't going to outperform the benchmark S&P 500 every year, the aptly dubbed Oracle of Omaha has overseen a greater than 5,720,000% cumulative return in his company's Class A shares (BRK.A) since the mid-1960s. This blows the total return, including dividends, of roughly 40,100% for the S&P 500 over the same timeline out of the water.
Buffett's secret to success is really no secret at all. Being the open book that he is, Berkshire's chief regularly shares the characteristics and traits he looks for in wonderful companies. In turn, investors aren't shy about riding the Oracle of Omaha's coattails to substantial long-term gains.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Among the portfolio 44-stock, $303 billion investment Warren Buffett oversees at Berkshire Hathaway, there are two historically cheap, time-tested businesses that are ripe for the picking in February, as well as another that would be best avoided.
The first phenomenal business that makes for a no-brainer buy this month is satellite-radio operator Sirius XM Holdings(NASDAQ: SIRI).
Shares of Sirius XM are down a whopping 56% over the trailing year, with competition playing the biggest role in this underperformance. The battle for listeners with terrestrial and online radio providers, coupled with some degree of economic uncertainty, caused Sirius XM's subscriber count to decline by nearly 1% in 2024. While this certainly isn't the performance shareholders were looking for, there are ample reasons to believe its stock is now a bargain.
Although Sirius XM is competing for listeners with traditional radio operators, it has the distinction of being a legal monopoly. No other business is licensed to operate satellite radio, which should afford the company some degree of subscription pricing power. It's worth noting that while self-pay subscribers declined in 2024, monthly churn during the fourth quarter actually fell by 10 basis points to 1.5% from the prior-year period. In other words, we may be witnessing a stabilization in its subscriber count.
Another factor that makes Sirius XM a stock investors can confidently buy in February is its operating model. Whereas traditional radio companies rely on advertising for almost the entirety of their sales, Sirius XM brought in just 20% of its net sales from ads (via Pandora) last year. The 76% of net sales it derives from subscriptions ensures minimal operating cash flow volatility during periods of economic turbulence.
There's also a degree of cost predictability with Sirius XM that simply doesn't exist with terrestrial and online radio companies. Regardless of how many subscribers the company has, line items like transmission and equipment expenses are relatively static.
Lastly, Sirius XM stock is historically cheap at just 7.2 times consensus earnings per share (EPS) for 2025. This is its cheapest multiple to forecast EPS since going public in 1994.
Image source: Coca-Cola.
A second Warren Buffett stock that can be purchased with confidence in the shortest month of the year is none other than Berkshire Hathaway's longest-held stock (since 1988), Coca-Cola(NYSE: KO).
In a world where artificial intelligence (AI) and stock splits move markets, it's not a surprise that slower-growing/mature stocks like Coca-Cola have lagged in the current bull market. But with the stock market now historically pricey, consumer staples like Coca-Cola have the right ingredients to shine.
For instance, Coca-Cola sports virtually unparalleled geographic diversity. It has operations ongoing in every country except North Korea, Cuba, and Russia, and is generating at least $1 billion in annual sales from over two dozen brands. This means it's moving the organic growth needle by taking advantage of faster growth rates in emerging markets, yet can rely on predictable operating cash flow from developed countries.
To build on this point, Coca-Cola is selling a basic need good: beverages. Regardless of what's thrown at the U.S. or global economy, consumers still need beverages. This adds to the consistency and predictability of Coca-Cola's operating cash flow.
Coca-Cola is also seamlessly blending the old with the new, in terms of marketing. It has more than a century of history to lean on when connecting with its mature audiences, and hasn't been shy about utilizing AI and social media channels to engage its next generation of consumers. These marketing efforts have translated into Coca-Cola being the most-chosen brand from retail shelves for 12 consecutive years (through 2023), according to Kantar's annual "Brand Footprint" report.
The final factor that makes Coca-Cola stock such a bubbly buy in February is its valuation. Its forward-year price-to-earnings (P/E) ratio of 21.6 is a 7% discount to its average forward P/E multiple over the trailing-five-year period.
On the other hand, just because Warren Buffett holds brand-name stocks in Berkshire Hathaway's $303 billion portfolio, it doesn't mean every one of those stocks is worth buying. In February, the Buffett stock to avoid is Berkshire's largest holding, Apple(NASDAQ: AAPL).
To clear the air, Apple isn't a bad business by any means. The iPhone is the domestic leader in smartphone sales, and Apple has regularly relied on its innovation to grow its top-and-bottom line. For example, its subscription-driven Services segment has been consistently growing sales by a double-digit percentage.
Apple is also a cash cow with a market-leading capital-return program. It's generated well over $110 billion in trailing-12-month operating cash flow, and is closing in on $750 billion in cumulative share repurchases since the start of 2013. Buying back stock can boost EPS for businesses with steady or growing net income.
But there are two big problems with Apple that can't be overlooked. First, sales of its physical products, which still account for around three-quarters of its net sales, have stalled. Revenue for iPhone fell during the fiscal first quarter (ended Dec. 28) by nearly 1%. While the incorporation of Apple Intelligence, the company's AI model, has the potential to reignite iPhone sales growth, Apple's physical product lines are decisively weighing it down at the moment.
The other issue for Apple is that it's historically pricey amid a period of stagnant growth. When Apple was delivering high-single-digit or low-double-digit sales growth, investors paid 20 to 25 times forward earnings without batting an eye. Today, Apple is commanding a multiple of 33.3 times forecast EPS for fiscal 2025 (ending in late September 2025). This represents a 24% premium to its average forward-year earnings multiple over the last five years.
It's worth noting that Buffett has sold 67% of Berkshire Hathaway's stake in Apple between Oct. 1, 2023 and Sept. 30, 2024. Though the Oracle of Omaha, in May, alluded to tax advantages as the catalyst behind this selling activity, Buffett's unwavering desire for value, and Apple's current lack of value, may be the impetus that sent a cumulative 615,560,382 shares of Berkshire's top holding to the chopping block.
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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.
