There is no shortage of beaten-down stocks in the market, and that's true of Berkshire Hathaway's (BRK.A -0.67%) (BRK.B -0.87%) closely watched portfolio. Berkshire owns about four dozen different stocks, many of which were hand-picked by Warren Buffett himself, and many are down by 20%, 30%, or much more from recent highs.
However, there are some that look like especially compelling opportunities from a risk-reward perspective. Here are three that could be worthy of a closer look as we head into the last month of 2022.
A dominant business with room to grow
It's rare to find a company that is dominant in two distinct industries, but Amazon (AMZN -1.08%) certainly falls into this category. The company has a massive lead in U.S. e-commerce, with a larger market share than its next 10 individual competitors combined. And its Amazon Web Services (AWS) platform is a leader in cloud services.
Despite its massive size, Amazon still has plenty of room to grow. E-commerce only makes up about 15% of retail sales today, and this has been steadily climbing for over a decade. The global cloud-computing market is expected to more than quadruple in size by 2030, at which point it will be a $1.6 trillion, high-margin revenue opportunity.
With Amazon down by nearly 50% from the highs, now could be an excellent opportunity to add this powerhouse business to your portfolio at a discount.
A ridiculously cheap bank stock
Ally Financial (ALLY -4.04%) was spun out from General Motors (GM -0.10%) in the wake of the financial crisis, so it shouldn't be a surprise that the bank's primary focus is auto lending. But Ally has evolved into a full-service online banking platform, with most types of consumer loans available, as well as a high-yield deposit platform and investment brokerage.
Ally has been beaten down recently, and it isn't hard to see why. Recession fears are giving investors concerns that consumers won't be able to pay their loans back, and with auto prices rising rapidly in recent years, this is an especially big concern when it comes to auto loans. However, this is an extremely profitable and well-run business, and there should be plenty of reserves set aside to cover any losses. With shares trading for just over four times forward earnings (that's not a typo), Ally could be worth a closer look for long-term investors.
A great entry point for this low-maintenance investment
Last but certainly not least, Berkshire has relatively small positions in a couple of S&P 500 exchange-traded funds (ETFs) in its portfolio, including the ultra-low-cost Vanguard S&P 500 Index Fund (VOO 0.01%).
To be fair, these might sound boring. After all, Buffett is known for beating the market over time, and these index funds, by definition, will simply match the performance of the S&P 500. However, as Buffett himself is quick to point out, the S&P 500 has been a great compounding machine over time, and a simple S&P 500 index fund is a great choice for many investors. Index funds like this can work as stand-alone investments or as a complement to a portfolio of stocks.
Plus, buying the S&P 500 in a bear market has historically been a great long-term move. If you had bought an S&P 500 index fund when the market dropped by 20% from its previous highs in the 2008 financial crisis, you would have achieved a 318% total return in the roughly 14 years since (about 10.5% annualized).
Plenty of great Buffett stocks
To be sure, there are about four dozen stocks in Berkshire Hathaway's portfolio, and there's a solid investment case to be made for most of them. After all, Buffett and his team tend to focus on businesses that work well in any economic environment and have the potential to beat the market over time with relatively low volatility. But these three look like especially compelling opportunities in the current bear-market environment, and investors who buy at these levels could be handsomely rewarded.