Warren Buffett just ditched Apple. 3 stocks they should buy instead.

of Warren Buffett Berkshire Hathaway revealed a huge sale on its massive Apple position in the second quarter – a position that was reported at $174 billion at the end of 2023 fell to $85 billion after Berkshire sold about half of Apple’s shares last quarter.

It remains to be seen whether Buffett is selling out completely or simply reducing the size of his stake. The important thing is that the greatest investor of all time now has a lot more money to reinvest in something more attractive.

Three Fool.com contributors weighed in with their suggestions on stocks Buffett might want to consider. Here’s why I think Amazon (AMZN 0.52%), LVMH Moet Hennessy Louis Vuitton (LVMHF 1.80%)and Williams-Sonoma (WSM 6.90%) it would match Berkshire’s past holdings and the businesses it already owns.

Buffett should double Berkshire’s stake in Amazon

John Ballard (Amazon): Amazon would be a great candidate to park some of Berkshire’s billions for a few important reasons.

Former Berkshire vice chairman Charle Munger, who died last year, previously called Amazon a “phenomenon of nature.” He admired founder and executive chairman Jeff Bezos’ skills in building the Amazon brand amid intense competition in the retail industry. Munger also believed more than five years ago that Amazon could have a long growth path ahead.

Buffett’s favorite investment has always been a business with a sustainable competitive advantage, and of course Berkshire owns several retail businesses, including Nebraska Furniture Mart, See’s Candies and Pampered Chef, that have been successful in a lousy industry. Amazon certainly has a wide economic moat to protect itself from competitor pressure. It enjoys tremendous customer loyalty and has one of the strongest brands around.

Most importantly, Amazon has a significant infrastructure advantage in e-commerce. It has mapped the entire US with large fulfillment centers that stock an unbeatable selection of items at competitive prices. In 2023, this allowed the company to deliver more than 7 billion items in a day to millions of customers.

Amazon also has a technological edge over its retail competitors. It has been investing in artificial intelligence (AI) for years, which powers product recommendations on its site. It is also paving the way for strong growth in its industry-leading cloud business, Amazon Web Services, a $98 billion revenue business that is growing at double-digit rates.

After all, Berkshire already owns 10 million shares of Amazon. One of Buffett’s deputy investors acquired a small stake on behalf of Berkshire in 2019. It wouldn’t be far-fetched to see Buffett add to that stake at some point.

Amazon is a more profitable business than the average discount retailer. It generated $48 billion in free cash flow from $604 billion in revenue last year. As the company’s profitability continues to grow, the stock can provide satisfying returns for patient investors like Warren Buffett.

Perfect fit for Buffett

Jeremy Bowman (LVMH): Buffett has long been a fan of big-name consumer stocks. Coca colafor example, it’s Berkshire’s longest-running stock, and Apple is still its biggest holding, despite shedding about half its stake this year.

However, Buffett has typically avoided luxury stocks like LVMH, even though they have many of the same assets as companies like Apple and Coca-Cola, including a set of well-known brands that carry a higher price tag, a history of success, and a smart management team.

Buffett is even friends with Bernard Arnault, the founder and CEO of LVMH, and Buffett sent him a letter asking him to reconsider his planned retirement at age 80.

On the stock side, LVMH is fresh off a smart partnership at the Olympics, where it sponsored everything from medal trays to wines and spirits under its Moet Hennessy brands.

Buffett may also appreciate the massive conglomerate model of LVMH, which is the largest in the luxury sector, containing brands such as Tiffany, Sephora, Tag Heuer and Dom Perignon.

In a difficult period for consumer discretionary goods, including luxury goods, LVMH continued to post strong profits, with an operating margin of 25.6% in the first half of the year, well above pre-Covid levels, translating into 10, 7 billion euros ($12 billion). in operating profit.

The stock has also pulled back on this slowdown, down 21% from its 52-week peak and trading at a price-to-earnings ratio of 24.6.

Growth is likely to improve as inflation and interest rates continue to fall around the world, and the stock would fit well in Berkshire’s portfolio and bring a new category to the company. It’s a good buy for Buffett and any other long-term investors looking to own a proven winner.

I’m surprised Buffett hasn’t bought this stock yet

Jennifer Saibil (Williams-Sonoma): Investors like to look at Warren Buffett’s stocks, but Berkshire Hathaway also owns a lot of whole businesses, including big companies with names you know like Duracell batteries, Dairy Queen restaurants, Geico insurance and Brooks sports equipment .

What you may not know is that Berkshire Hathaway owns several furniture businesses, making it one of the largest furniture companies in the country. Berkshire’s furniture-related investments are also less well known. The conglomerate has taken a stake in a high-end furniture retailer RH in 2019 but has since sold it.

Luxury furniture company Williams-Sonoma could do well as a Berkshire investment because it performs like your typical Buffett stock, and I wouldn’t be surprised to see it end up in his portfolio.

Williams-Sonoma is a leading housewares company with a resilient consumer base. Although it feels the pressure of inflation, it runs a tight ship and still manages to generate strong margins and profits. Adjusted gross margin (which included a tax benefit this quarter) was 45.4% in the first quarter of fiscal 2024 (ended April 30), up 6.8% year over year. Operating margin was 19.2%, up from 16.6% last year.

These are excellent margins in any circumstance for a retailer, and even more so when sales are down and inflation is high. Management raised its full-year operating margin outlook and reiterated its long-term guidance for revenue growth in the mid- to high-single digits and operating margin in the mid- to high-teens. This is the efficient use of capital, which is something else Buffett looks for in a business. It also generates consistently strong free cash flow and has no debt.

In addition, Williams-Sonoma pays a growing dividend with a slightly above-average yield of 1.4% and returns value to shareholders through an extensive share repurchase program.

Williams-Sonoma stock trades at a reasonable valuation, and projected future earnings suggest it may be undervalued. It’s not as cheap as last year, but at 17 times trailing 12-month earnings, it’s still a lot cheaper than S&P 500 average 27.