Warren Buffett Thinks Investors Are "Playing With Fire" With a Sky-High Market Valuation. But He Can't Stop Buying These 3 Stocks.

If you're buying stocks hand over fist right now, you're living dangerously. At least, that's what Warren Buffett would probably tell you.

The legendary investor stated in a Fortune article published in 2001 that if the ratio of total stock market capitalization to gross national product (GNP) approaches 200%, investors are "playing with fire." This ratio is now known as the Buffett indicator, with gross domestic product (GDP) replacing GNP. Guess what the level of the Buffett indicator is right now? An all-time high of 219%.

But Buffett himself isn't completely throwing in the towel on the stock market despite its sky-high valuation. The "Oracle of Omaha" and his team at Berkshire Hathaway can't stop buying these three stocks, in particular.

Image source: The Motley Fool.

1. Constellation Brands

Buffett's Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) initiated a new position in Constellation Brands (NYSE: STZ) in the fourth quarter of 2024 and added more shares of the premium beer, wine, and spirits company in the first and second quarters of 2025. Berkshire now has a 7.7% stake in Constellation Brands worth roughly $1.9 billion.

Why does Buffett like this stock so much? For one thing, it's a business he undoubtedly understands. Whether or not Buffett consumes Constellation Brands' products, he knows they enjoy strong market positions -- especially the company's Corona and Modelo premium beers.

Buffett also probably likes Constellation's valuation. The stock's forward price-to-earnings ratio of 12 looks like a bargain compared to most other stocks.

I think Buffett and the team at Berkshire like Constellation Brands' ability to generate reliable free cash flow, too. In the first half of fiscal year 2026, the company pulled in free cash flow of $1.1 billion. Management has deployed some of this strong free cash flow in funding the dividend program and had completed $604 million of stock buybacks in calendar year 2025 as of September.

2. Lennar

Lennar (NYSE: LEN) (NYSE: LEN.B) has two share classes. Berkshire owns both of them and has bought Lennar's class A and class B shares in the first two quarters of 2025.

It's not hard to imagine why Buffett likes Lennar. The company ranks among the biggest homebuilders in the U.S., and Buffett has direct experience with a similar business: Clayton Homes is one of Berkshire's subsidiaries.

The U.S. continues to face a chronic housing shortage. This should bode well for Lennar's long-term growth prospects, something that Buffett almost certainly knows. His purchases of Lennar's class A and class B shares this year could also have been partially motivated by expectations that the Federal Reserve would lower interest rates, leading to a decline in mortgage rates.

I suspect Buffett views Lennar's valuation as attractive, too. The stock trades at under 14 times forward earnings estimates.

3. Pool Corp.

Berkshire initiated a position in Pool Corp. (NASDAQ: POOL) in the third quarter of 2024, and has bought additional shares of the world's largest wholesale distributor of swimming pool and related outdoor living products in every reported quarter since then. Berkshire now has a 9.3% stake in Pool worth over $1 billion.

Interestingly, though, Pool's valuation isn't at a bargain level like Constellation Brands' and Lennar's. Pool's shares trade at 26.6 times earnings estimates. The company's growth doesn't seem to warrant a premium price tag, either. Pool's net sales increased by only 1% year over year in its latest quarter, with diluted earnings per share rising by a modest 4%.

So why might Buffett be loading up on this stock? He could like Pool's durable business model. The company has a strong market position. It also generates a predictable cash flow, with repairs and maintenance to existing pools making up over 60% of revenue.

Buffett and his team could also think that Pool's long-term growth prospects are much better than its recent growth. The average age of swimming pools in the U.S. is increasing, which should drive higher repair and maintenance revenue. Many Americans are also moving to warmer climates, a trend that could boost new pool installations.

Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Lennar. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.