Warren Buffett’s Low P/E Stock Picks Include GM

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The holding company reported a position of over 27 million shares in Phillips 66 (NYSE:PSX). Phillips 66 is a refining, marketing, and chemicals company recently spun out from ConocoPhillips (NYSE:COP) with a current market cap of $41 billion. It trades at 10 times earnings, whether we compare that market cap to trailing earnings or to analyst consensus for 2014. While that is a cheap valuation metric, it appears that reported revenue and earnings have been down recently. Legg Mason Capital Management, managed by Bill Miller, had 1.7 million shares of Phillips 66 in its portfolio (find Miller’s favorite stocks).

ConocoPhillips itself also qualifies as a cheap Buffett stock pick with Berkshire owning 24 million shares at the end of the fourth quarter of 2012. Neither position was changed in the previous three months so Buffett appears to like both companies for the long term. ConocoPhillips, as it happens, is not only a value play at 10 times forward earnings estimates but also has been paying sizable dividends which equate to a yield of 4.6%. Two Sigma Advisors moved heavily into the stock in the fourth quarter (research more stocks Two Sigma is buying).

General Motors Company (NYSE:GM) rounds out our list of Buffett’s top five cheap stock picks; he increased his stake by 67% between October and December to a total of 25 million shares. GM was one of the most popular stocks among hedge funds in the fourth quarter of 2012 (find more stocks hedge funds loved). It’s another stock where the sell-side is very optimistic, with the five-year PEG ratio coming in at 0.5. The trailing P/E of 10 is competitive with other automakers, and so we would compare GM to its peers before deciding if it might be a good value for its industry.

Disclosure: I own no shares of any stocks mentioned in this article.

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