2 Warren Buffett Stocks That Could Crush the Market in 2023

If you want to beat the market, there’s no one better to follow than Warren Buffett.

The compound annual growth from Buffett’s company, Berkshire Hathaway (BRK.A 0.14%) (BRK.B), has nearly doubled the S&P 500‘s annual return of almost 60 years, making early investors millionaires and Buffett one of the richest people in the world.

In characteristic fashion, Berkshire Hathaway beat the S&P 500 last year, gaining 3% compared to a 19% loss for the broad-market index.

Looking ahead to 2023, here are two Buffett stocks that appear poised to outperform.

Image source: The Motley Fool.

1. Apple

Apple (AAPL -0.47%), which is Berkshire’s top holding, has gotten a fast start out of the gate, with shares of the iPhone maker up 10% to start the year. 

Apple stock fell 27% last year, and it’s starting to look like the sell-off was overblown. Demand for the iPhone 14 remains strong, according to the company’s update in November, and it also looks poised to benefit from the weakening dollar. In fact, Apple’s guidance of a 10-percentage-point headwind in its December quarterly report seems overly conservative and should help the company beat estimates in its upcoming earnings report.  

The iPhone maker is also the only one of the big tech companies, including AlphabetMicrosoftAmazon, and Meta Platforms, to have not issued major layoffs. Rather than ramping up headcount during the pandemic like many of its peers in the tech industry did, Apple grew its employee base judiciously. From September 2020 to September 2022, it added 17,000 employees, growing its workforce by 12%, even though its revenue jumped by a total of 44% during that period.

The decision not to over-hire puts Apple in a much better position than its peers, and it can capitalize on the opportunity in the layoffs at other tech companies by hiring their talent.

Finally, the company is set to introduce a new mixed-reality headset in June, priced at as much as $3,000. The device has the potential to be a game-changer and could put Apple in the lead in the metaverse, ahead of Meta Platforms.

The business remains a cash machine and spins off enough cash to support a healthy buyback program, but the stock trades at just a slight premium to the S&P 500 at a price-to-earnings ratio of 23. If the economy starts to recover in 2023, Apple could soar.

2. RH

RH (RH 0.56%), the company formerly known as Restoration Hardware, might not fit the conventional definition of a Buffett stock. But RH is cheap and has proven its competitive advantages, carving out a well-known brand in the high-end home furnishings market. It also pivoted to a membership model a few years ago, creating a base of loyal customers who pay $175 a year for discounts of 20% to 25% on merchandise. The membership program has been highly successful.

The company finished fiscal 2021, which ended a year ago, with 459,000 members, who made up 97% of its revenue. The average member spent about $8,000 that year with the company.

Today, the stock trades at a P/E ratio of just 11, due primarily to short-term headwinds. CEO Gary Friedman has warned about weakness in the housing market, which directly affects RH, and macroeconomic headwinds more generally.

However, the company isn’t sitting still even as it faces a difficult economy. RH is expanding into new markets, opening galleries in England and major cities in Europe. It’s also leveraging the RH brand into new categories including hotels and restaurants, leasing planes and a yacht, and launching a media division, which includes a streaming service devoted to architecture and design. It also plans to sell fully furnished homes, branded as RH Residences, which opens it up to the real estate market. 

RH’s membership base of nearly half a million households should help make those new initiatives a success in expanding the luxury brand to new markets beyond just home furnishings. While it may be risky, Friedman has proven the market wrong before with the pivot to a membership model, and the stock is priced like a no-growth value play, rather than a luxury stock expanding to new models.

If Friedman can prove the market wrong again, the stock could have a lot of upside in front of it.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon.com, Meta Platforms, and RH. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Apple, Berkshire Hathaway, Meta Platforms, and Microsoft. The Motley Fool recommends RH and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.