In this article, we discuss the 12 cheap value stocks to buy according to Warren Buffett.
Warren Buffett and His Investment Strategy
Warren Buffett is one of the most successful investors in the world and started his career in the business world at a very young age. He started his career by selling chewing gum when he was a minor and filed his first income tax return when he was 14. With a net worth of $106 billion, he is the fifth richest person in the world.
Warren Buffett’s investment strategy is quite simple. First of all, he mostly invests in stocks with a long-term mindset. He once said:
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
Moreover, Buffett invests in companies with strong fundamentals and potential for long-term growth. In regards to that, he stated:
“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
Berkshire Hathaway Inc.
Berkshire Hathaway was started by Oliver Chance in 1839 as a textile manufacturing company by the name of Valley Falls Company. Through a couple of mergers, the Valley Falls Company became Berkshire Hathaway Inc. in 1955. Warren Buffett acquired Berkshire Hathaway in 1962 when he saw the textile manufacturing business failing and expanded it to the insurance industry in 1967. Currently, it operates as a multinational holding company, as well as a hedge fund. It is listed on NYSE and NASDAQ with ticker symbols BRK.A and BRK.B.
In the third quarter, because of the 41.76% concentration in Apple Inc. (NASDAQ:AAPL), 46.84% of his 13F portfolio was represented by the technology sector. It was followed by the financial sector with a 22.86% concentration.
Since 2013, Berkshire Hathaway Inc.’s portfolio has gained over 82 percentage points and its 3-year annualized average returns stand at 7.7%. In the third quarter of 2022, the hedge fund’s 13F portfolio was valued at $296.097 billion, down from $300.131 billion in the second quarter. In Q3, the firm added three new stocks to its portfolio and sold out of one.
The top three companies in Berkshire Hathaway’s portfolio include Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and Chevron Corporation (NYSE:CVX).
Our Methodology
After analyzing Berkshire Hathaway’s stock portfolio, we selected 12 stocks that made the perfect fit for the list of 12 cheap value stocks to buy according to Warren Buffett. The stocks were picked from Warren Buffett’s investment portfolio based on their current valuations and their future growth prospects. We believe that the stocks on the list are trading at a lower price than their underlying fundamentals indicate.
The hedge fund sentiment around each stock was taken from Insider Monkey’s database of 920 elite hedge funds.
12 Cheap Value Stocks To Buy According To Warren Buffett
12. Paramount Global (NASDAQ:PARA)
Value of Berkshire Hathaway’s 13F Position: $1.7 billion
Number of Hedge Fund Holders: 40
Paramount Global (NASDAQ:PARA) is a New York-based mass media and entertainment company. It has been beaten down in 2022 and the company’s stock price has fallen by almost 47.6% year-to-date as of December 21. Additionally, Paramount Global (NASDAQ:PARA)’s TTM PE ratio stands at 3.75x.
Paramount Global (NASDAQ:PARA) has high regard for shareholder returns and has a dividend yield of 5.8% with a payout ratio of 72.35% as of December 21. Its last quarterly dividend was declared on September 21, payable by January 3 to the shareholders of record on December 15.
The top five hedge fund holders of Paramount Global (NASDAQ:PARA) increased their holdings in the company by a noteworthy amount in the third quarter. Berkshire Hathaway was the largest stakeholder in the company and increased its activity in the company by 17% to 91.2 million shares, worth $1.7 billion.
Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and Chevron Corporation (NYSE:CVX) along with Paramount Global (NASDAQ:PARA) are some of the cheap value stocks to buy according to Warren Buffett’s hedge fund portfolio
11. VeriSign, Inc. (NASDAQ:VRSN)
Value of Berkshire Hathaway’s 13F Position: $2.2 billion
Number of Hedge Fund Holders: 37
VeriSign, Inc. (NASDAQ:VRSN) is an American software infrastructure company headquartered in Virginia. Along with other network infrastructure operations, the company also operates two of the internet’s root nameservers.
In the last three months, Baird analyst Rob Oliver and Citi analyst Ygal Arounian have covered VeriSign, Inc. (NASDAQ:VRSN) stock. The former upgraded the company to Outperform rating from Neutral, while the latter initiated coverage with a Buy rating. Their average price target for the stock is $254 which shows a significant upside from the company’s stock price of around $204.81 at the time of market close on December 21.
According to the Insider Monkey database, 37 hedge funds had a stake worth $4.26 billion in VeriSign, Inc. (NASDAQ:VRSN), compared to 35 hedge funds with a combined value of $4.1 billion in the previous quarter. Berkshire Hathaway owned 12.8 million VeriSign, Inc. (NASDAQ:VRSN) shares worth $2.2 billion in the third quarter, making it the hedge fund with the most significant stake in the company.
10. Citigroup Inc. (NYSE:C)
Value of Berkshire Hathaway’s 13F Position: $2.298 billion
Number of Hedge Fund Holders: 85
Citigroup Inc. (NYSE:C) is a New York-based investment banking and financial services institution. It is one of the largest banking services firms in the United States.
Citigroup Inc. (NYSE:C) is among the best cheap value stocks to buy as it is trading at a PE ratio of 5.5 as of December 21. Furthermore, the average price target of Wall Street analysts for Citigroup Inc. (NYSE:C) stands at $53.63 which represents approximately 22% upside from the stock price of $44 at the time of market close on December 21. On top of that, the current stock price of the company is significantly lower than the firm’s book value per share of $92.71 at the end of the third quarter.
Among the hedge funds tracked by Insider Monkey, 85 of them had a stake in Citigroup Inc. (NYSE:C), compared to 82 in the second quarter. Berkshire Hathaway had the most prominent stake in the company in the third quarter with over 55 million shares, worth $2.298 billion, making up 0.77% of the fund’s portfolio.
Citigroup Inc. (NYSE:C) has a dividend yield of 4.6% on December 21, compared to the sector average of 3.18%. The company’s annualized dividend payout stands at $2.04 and has a payout ratio of 31.49%.
9. U.S. Bancorp (NYSE:USB)
Value of Berkshire Hathaway’s 13F Position: $3.136 billion
Number of Hedge Fund Holders: 52
U.S. Bancorp (NYSE:USB) is one of the largest banking firms in the United States. The company’s services include consumer banking, corporate banking, investment banking, private equity, wealth management, insurance, and financial analysis among other banking services. U.S. Bancorp (NYSE:USB) covers 1.05% of Berkshire Hathaway’s portfolio with 77.788 million shares, worth $3.136 billion.
U.S. Bancorp (NYSE:USB) has a substantial dividend yield of 4.4% as of December 21. The banking firm has been increasing its dividends for the last decade and has a payout ratio of 38.53%. On December 13, U.S. Bancorp (NYSE:USB) declared a quarterly dividend of $0.48, payable by January 17 to the shareholders of record on December 30.
U.S. Bancorp (NYSE:USB) stock has declined by over 24% year-to-date on December 21 and is trading at a PE ratio of 9.8x.
On December 14, Keefe Bruyette analyst David Konrad upgraded U.S. Bancorp (NYSE:USB) shares to Outperform from Market Perform and raised the price target to $58 from $52. According to the analyst, the firm is trading at a “deep discount to historical valuations.”
Here is what ClearBridge Investments had to say about U.S. Bancorp (NYSE:USB) in its Q4 2021 investor letter:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We have increased our exposure to interest-rate sensitive banks by adding to existing positions in U.S. Bancorp.”
8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Value of Berkshire Hathaway’s 13F Position: $4.1 billion
Number of Hedge Fund Holders: 87
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the world’s most valuable semiconductor companies. It covers 20% of the global semiconductor industry. Due to supply chain constraints, the semiconductor stocks faced a decline, and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stock is down around 40.1% year-to-date on December 21. However, the semiconductor industry is expected to grow at a CAGR of 12.2% to $1.38 trillion by 2029, making a bullish case for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
On December 9, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) reported that the November net revenue of the company increased by 50.2% year-over-year to NT$222.71 billion (1 Taiwan Dollar = 0.033 US Dollars). In addition, the company’s January to November net revenue increased by 44.6% year-over-year to NT$2.07 trillion.
In the last three months, 5 analysts covered Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and all of them maintain a Buy or Outperform rating on the company stock with an average price target of $104.
Berkshire Hathaway added Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to its portfolio in the third quarter of 2022 with over 60 million shares, valued at $4.1 billion, representing 1.39% of the fund’s portfolio.
Baron Funds mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
in its Q2 2022 investor letter. Here is what the fund said:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)detracted in the second quarter due to macroeconomic uncertainties and softening demand for consumer electronics. We retain conviction that Taiwan Semi’s technological leadership, pricing power, and exposure to secular growth markets, including high-performance computing, automotive, and IoT, will allow the company to deliver strong revenue growth over the next several years.”
7. Moody’s Corporation (NYSE:MCO)
Value of Berkshire Hathaway’s 13F Position: $5.997 billion
Number of Hedge Fund Holders: 63
Moody’s Corporation (NYSE:MCO) is a New York-based investor service and analytics company. It provides integrated risk assessment to businesses and government organizations around the globe. As of December 21, Moody’s Corporation (NYSE:MCO)’s share price is down 27.22% and is trading at the lower end of its 52-week range.
Moody’s Corporation (NYSE:MCO) is one of the cheap value stocks in Warren Buffett’s portfolio as some analysts see a healthy upside from the current stock price. On November 23, Oppenheimer analyst Owen Lau maintained an Outperform rating on the company shares and raised his price target to $310 from $288. The analyst is optimistic about the company’s long-term competitive moat.
In the third quarter, 63 hedge funds were bullish on Moody’s Corporation (NYSE:MCO). Berkshire Hathaway was the largest shareholder in the company with 24.67 million shares, worth $5.997 billion.
6. The Kraft Heinz Company (NASDAQ:KHC)
Value of Berkshire Hathaway’s 13F Position: $10.86 billion
Number of Hedge Fund Holders: 40
The Kraft Heinz Company (NASDAQ:KHC) is an Illinois-based food company. It is one of the largest food and beverage companies in the world. The company has close to 60 brands and several of them have total individual sales of over $1 billion.
The Kraft Heinz Company (NASDAQ:KHC) shares were held by 40 hedge funds in the third quarter of 2022. Berkshire Hathaway was the largest stakeholder with over 325.63 million shares worth $10.86 billion. Citadel Investment Group held the most prominent stake after Berkshire Hathaway after increasing its holdings in The Kraft Heinz Company (NASDAQ:KHC) by 20% to 6.6 million shares, valued at $220.624 million
On December 6, Deutsche Bank analyst Steve Powers maintained a Buy rating on The Kraft Heinz Company (NASDAQ:KHC) with a $49 price target, up from $47.
Other than Kraft Heinz Company (NASDAQ:KHC), cheap value stocks to buy according to Warren Buffett include Apple Inc. (NASDAQ:AAPL), Bank of America Corporation (NYSE:BAC), and Chevron Corporation (NYSE:CVX).
5. Occidental Petroleum Corporation (NYSE:OXY)
Value of Berkshire Hathaway’s 13F Position: $11.9 billion
Number of Hedge Fund Holders: 74
Occidental Petroleum Corporation (NYSE:OXY) is one of the oil and gas stocks that lost their value in the last month due to falling crude oil prices. The company stock went down by over 13% in the last 30 days as of December 21. Nevertheless, the US Energy Information Administration predicts that oil prices are going to receive a significant boost in price per barrel due to a higher demand than supply, which bears good news for Occidental Petroleum Corporation (NYSE:OXY) stock. The company stock is trading at a PE ratio of 6.9x as of December 21.
According to our database, the hedge funds having a stake in Occidental Petroleum Corporation (NYSE:OXY) increased from 66 in Q2 to 74 in Q3 2022. Berkshire Hathaway increased its holdings in the company by 23% in the quarter to 194.35 million shares, worth $11.9 billion in the September quarter, making it the leading shareholder of the company.
On December 7, Barclays analyst Jeanine Wai reiterated an Outperform rating on Occidental Petroleum Corporation (NYSE:OXY) and lowered the price target to $74 from $85 after the company’s Q3 results.
Here is what Smead Capital Management has to say about Occidental Petroleum Corporation (NYSE:OXY) in its Q3 2022 investor letter:
“Our top-performing stocks in the quarter includes Occidental Petroleum (NYSE:OXY). Oil and gas have been the best game in the stock market town this year and it was a pleasant surprise to see home builders pick up even with dour news on interest rates and the economy. For the first three quarters of the year, we should change the name of our fund to the Jed Clampett Fund. Occidental Petroleum (NYSE:OXY), was one of the standouts. Up through the bear market came a “bubblin’ crude!”
4. American Express Company (NYSE:AXP)
Value of Berkshire Hathaway’s 13F Position: $20.453 billion
Number of Hedge Fund Holders: 68
American Express Company (NYSE:AXP) is a New York-based payment processing company. As of December 21, the company is trading at a PE ratio of 14.6x and the stock price of $147.10 is leaning more toward the lower end of its 52-week range.
Among the hedge funds tracked by Insider Monkey, 68 of them had a stake in American Express Company (NYSE:AXP) in the third quarter, compared to 67 in the previous one. Berkshire Hathaway retained its position as the most prominent shareholder in Q3 with 151.61 million shares, valued at $20.453 billion, representing 6.9% of the fund’s portfolio.
As of December 21, American Express Company (NYSE:AXP) has a dividend yield of 1.41% with a 19.47% payout ratio. Its latest quarterly dividend of $0.52 was declared on December 7, payable by February 10 to the shareholders of record on January 6.
On December 15, Wells Fargo analyst Donald Fandetti reaffirmed an Overweight rating on American Express Company (NYSE:AXP)’s shares and raised the price target to $180 from $170.
Here is what ClearBridge Investments had to say about American Express Company (NYSE:AXP) in its Q2 2021 investor letter:
“In financials, American Express has done an excellent job demonstrating the resiliency of its franchise in the midst of a global pandemic that drove a 60% decline in its core travel and entertainment business. The company’s spend-centric model has been helped by fiscal stimulus ensuring a flush consumer, while management continues to execute well by adding millions of new consumer and small and medium business accounts, which should benefit the franchise over the medium to long term. We remain optimistic regarding the company’s prospects as travel and entertainment activity rebounds, adding to our position in the quarter.”
3. Chevron Corporation (NYSE:CVX)
Value of Berkshire Hathaway’s 13F Position: $23.757 billion
Number of Hedge Fund Holders: 66
Chevron Corporation (NYSE:CVX) is one of the largest oil and gas companies in the world. After achieving major profitability in the first three quarters of 2022, the company stock has lost 6.6% of its value as of December 21 and is trading at a PE ratio of 10x.
Chevron Corporation (NYSE:CVX) stock has shown a decline after crude oil prices dropped below $77 at the beginning of December. However, according to the US Energy Information Administration, the global oil supply will not be able to meet the global oil demand in 2023. The supply constraints are expected to boost Brent crude oil prices to an average of $95 in 2023. Oil and gas companies like Chevron Corporation (NYSE:CVX) will benefit significantly due to the price increase which is why it is on our list of cheap value stocks to buy according to Warren Buffett.
Chevron Corporation (NYSE:CVX) is a great dividend stock that has offered dividend increases for 35 consecutive years. As of December 21, the company has a dividend yield of 3.3% and a 34.4% payout ratio.
Berkshire Hathaway held over 165 million shares of Chevron Corporation (NYSE:CVX), valued at $23.757 billion in the third quarter of 2022. The company represented 8.02% of the firm’s portfolio.
Here is what Diamond Hill Capital to say about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:
“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”
2. Bank of America Corporation (NYSE:BAC)
Value of Berkshire Hathaway’s 13F Position: $30.505 billion
Number of Hedge Fund Holders: 97
Bank of America Corporation (NYSE:BAC) is a banking firm that offers investment management, asset management, equities trading, mutual funds, and banking services along with many other services.
Berkshire Hathaway held over 1 billion shares of Bank of America Corporation (NYSE:BAC), valued at $30.505 billion in the third quarter of 2022. The firm represented 10.3% of the hedge fund’s portfolio. Moreover, two of the significant shareholders of the company, GQG Partners and Fisher Asset Management increased their holdings in Bank of America Corporation (NYSE:BAC) by 8732% and 1357%, respectively.
As of December 21, Bank of America Corporation (NYSE:BAC)’s shares have lost almost 30% of their value and its FWD PE ratio stands at 8.5x. Furthermore, 12 analysts have covered the company stock in the last three months, and their average price target stands at $39.82, compared to the current stock price of $32.68.
1. Apple Inc. (NASDAQ:AAPL)
Value of Berkshire Hathaway’s 13F Position: $123.66 billion
Number of Hedge Fund Holders: 140
Apple Inc. (NASDAQ:AAPL) is one of the largest companies in the world and is a part of the American Big Five tech companies. It serves worldwide and is considered one of the most valuable brands. Apple Inc. (NASDAQ:AAPL) covered the most significant part of Berkshire Hathaway’s portfolio with a 41.76% concentration in Q3 2022. The fund held 894.802 million company shares, worth $123.66 billion.
Apple Inc. (NASDAQ:AAPL) stock lost 25.58% of its value year-to-date on December 21 and is trading at a PE ratio of 21.6x. In comparison, its peer average PE ratio stands at 33.1x. Moreover, the company reported massive cash and cash equivalents of $24.646 billion, which makes it a safe stock and also gives it room for dividend and share repurchase growth. These factors make Apple Inc. (NASDAQ:AAPL) a cheap value stock in Warren Buffett’s portfolio.
On December 19, JPMorgan analyst Samik Chatterjee maintained an Overweight rating on Apple Inc. (NASDAQ:AAPL)’s stock with a $190 price target, down from $200. Out of 27 analysts covering the company stock, 23 of them maintain a Buy or Outperform rating with a $179.10 price target. In addition, even the lowest price forecast of $144 represents an upside from the current price of $135.45.
Here is what Alger Capital specifically said about Apple Inc. (NASDAQ:AAPL) in its Q2 2022:
“Apple Inc. (NASDAQ:AAPL) is a leading technology provider in telecommunications. computing and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives extremely tight engagement with consumers and enterprises. The engagement is fostering the growing purchase of high-margin services like music, apps, and apple pay. Apple’s shares detracted from performance as management lowered its guidance for the second quarter due to headwinds from the war in Ukraine, adverse foreign currency shifts, and dampened consumer demand associated with the coronavirus in China. Additionally, many investors were concerned that lockdowns implemented to curtail the spread of COVID-19 would impact production of apple products, however the manufacturing facilities have resumed activity.”
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Disclosure: None. 12 Cheap Value Stocks to Buy According to Warren Buffett is originally published on Insider Monkey.
