In this article, we discuss the 11 best value stocks to buy according to Warren Buffett.
Warren Buffett does not need any introduction in the investment world. He is regarded as one of the most prominent and successful investors of all time and is the sixth richest person in the world. As of October 2021, his net worth stands at $103 billion.
Warren Buffett’s success as an investor can be attributed to his long-term value-based investment model, which was initially adopted by his teacher Benjamin Graham. His investment philosophy revolves around picking undervalued stocks exhibiting strong growth potential. This investment philosophy helped him generate positive returns as his hedge fund’s average monthly returns stood at 0.97% from 1999 to 2017, compared with 0.38% gains of S&P 500.
Value stocks are generally those stocks that are trading at a low price as compared to their potential or performance. In the past 15 years, value ETFs returned 75% to the investors. Similarly, value ETFs gained 164% from 2010 to 2020. With this pattern, there is a bright chance of value stocks outperforming the growth stocks in the coming year, as reported by the leading American business magazine, Forbes. This comes in agreement with Buffett’s philosophy of loading up on undervalued stocks, which are generally overlooked by investors.
As of Q2 2021, Berkshire Hathaway’s 13F portfolio has positions in only 44 companies, with the top 5 companies representing about 76% of the whole portfolio. The hedge fund invests heavily in the tech and finance sector, while no industrial or utility companies are added to the portfolio. Some of the notable value stocks in Buffett’s 13F portfolio include Bank of America Corporation (NYSE:BAC), The Kraft Heinz Company (NASDAQ:KHC), Verizon Communications Inc. (NYSE:VZ), U.S. Bancorp (NYSE:USB), and DaVita Inc. (NYSE:DVA).
Our Methodology:
Let’s analyze our list of the best value stocks to buy according to Warren Buffett. For this list, we took into account Berkshire Hathaway’s 13F portfolio as of Q2 2021.
We choose the stocks from Buffett’s portfolio that have attractive P/E ratios. We also took into account hedge fund sentiment and analysts’ ratings during our stock selection.
Why pay attention to hedge fund sentiment while choosing stocks?
Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by wide margins. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
11 Best Value Stocks To Buy According To Warren Buffett
11. Wells Fargo & Company (NYSE:WFC)
Berkshire Hathaway’s Stake Value: $30,573,000
Percent of Berkshire Hathaway 13F Portfolio: 0.01%
Number of Hedge Fund Holders: 94
PE Ratio (TTM): 12.66
Wells Fargo & Company ranks eleventh on our list of the best value stocks to buy according to Warren Buffett. It is an American multinational financial services company, with headquarters in California, U.S.
As of Q2 2021, Berkshire Hathaway holds 675,054 shares in Wells Fargo & Company, valued at $30.5 million. The company accounts for 0.01% of the hedge fund’s 13F portfolio. In Q2 2021, Wells Fargo & Company posted a GAAP EPS of $1.38, beating the estimates by $0.40. On July 20, Wells Fargo & Company announced a 100% increase in its dividend at $0.20 per share, yielding 1.77%.
It has been increasing its dividend for the past 2 years. The company has a trailing-twelve-month P/E ratio of 12.66. In October, Jefferies Financial Group lifted its price target on Wells Fargo & Company to $57, while keeping a ‘Buy’ rating on the shares.
As of Q2 2021, 94 hedge funds tracked by Insider Monkey have positions in Wells Fargo & Company, compared with 96 in the previous quarter. The total value of these stakes is over $7.08 billion.
Like Bank of America Corporation, The Kraft Heinz Company, Verizon Communications Inc., U.S. Bancorp, and DaVita Inc., Wells Fargo & Company is also one of notable stocks in Buffett’s 13F portfolio in Q2.
L1 Capital mentioned Wells Fargo & Company in its Q2 2021 investor letter. Here is what the firm has to say:
“Wells Fargo (Long +16%) was the strongest contributor to portfolio performance over the quarter. Wells Fargo shares rallied given a better outlook for bad debts driven by improving employment and house price trends. The company had been very undervalued due to excessive fears around likely bad debts due to the pandemic, the continued regulatory “asset cap” (a punishment that was put in place in 2017 for numerous compliance failures) and an inability to commence buybacks. The share price has subsequently recovered strongly in recent months as the company has progressed its turnaround program under the leadership of the well-regarded CEO, Charles Scharf (former CEO of Visa and BNY Mellon). Wells Fargo is now closer to getting the asset cap lifted and has announced a huge cost out program (US$8b+) as well as an $18b buyback program to be completed over the next 12 months. Wells Fargo shares have rallied more than 50% since we initiated the position in late 2020. Given the strong rally, we elected to exit our position and rotate into stocks with larger valuation upside.”
10. Mondelez International, Inc. (NASDAQ:MDLZ)
Berkshire Hathaway’s Stake Value: $36,090,000
Percent of Berkshire Hathaway 13F Portfolio: 0.01%
Number of Hedge Fund Holders: 53
PE Ratio (TTM): 19.84
Mondelez International, Inc. (NASDAQ:MDLZ) is an American confectionery company dealing mainly in food, snacks, and beverages. The company ranks tenth on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway owns over 578,000 shares in Mondelez International, Inc., valued at over $36 million. The company accounts for 0.01% of the hedge fund’s 13F portfolio. In Q2 2021, Mondelez International, Inc. posted an EPS of $0.66, beating the estimates by $0.01. The company pays an annual dividend of $1.40 per share, yielding 2.36%. In September, Morgan Stanley assumed its coverage on Mondelez International, Inc. with an ‘Overweight’ rating and a $69 price target, highlighting the company’s recent execution.
As of Q2 2021, the number of hedge funds tracked by Insider Monkey with stakes in Mondelez International, Inc. grew to 53 from 45 in the previous quarter. The total value of these stakes is roughly $3 billion. Diamond Hill Capital is the company’s leading shareholder, with shares worth $598 million.
Like Bank of America Corporation, The Kraft Heinz Company, Verizon Communications Inc., U.S. Bancorp, and DaVita Inc., Mondelez International, Inc. is also one of the notable stocks in 2021.
9. The Procter & Gamble Company (NYSE:PG)
Berkshire Hathaway’s Stake Value: $42,557,000
Percent of Berkshire Hathaway 13F Portfolio: 0.01%
Number of Hedge Fund Holders: 68
PE Ratio (TTM): 25.8
The Procter & Gamble Company is an American consumer goods company that specializes in personal care and hygiene products. The company ranks ninth on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway owns 315,400 shares in The Procter & Gamble Company, valued at $42.5 million. The company represents 0.01% of the hedge fund’s 13F portfolio.
In October, BofA initiated its coverage on The Procter & Gamble Company with a ‘Buy’ rating and a $160 price target, highlighting the company’s expansion of direct-to-consumer services. In Q2 2021, The Procter & Gamble Company posted an EPS of $1.13, beating the estimates by $0.05. The company pays an annual dividend of $3.48 per share, yielding 2.45%. It has a trailing-twelve-month P/E ratio of 25.88.
As of Q2 2021, 68 hedge funds tracked by Insider Monkey have positions in The Procter & Gamble Company, compared with 70 in the previous quarter. The total value of these stakes is approximately $7 billion.
Like Bank of America Corporation, The Kraft Heinz Company, Verizon Communications Inc., U.S. Bancorp, and DaVita Inc., The Procter & Gamble Company is also favored by investors in 2021.
8. Johnson & Johnson (NYSE:JNJ)
Berkshire Hathaway’s Stake Value: $53,886,000
Percent of Berkshire Hathaway 13F Portfolio: 0.01%
Number of Hedge Fund Holders: 88
PE Ratio (TTM): 23.9
Johnson & Johnson stands eighth on our list of the best value stocks to buy according to Warren Buffett. It is an American holding company that specializes in the manufacturing and sales of health care products.
As of Q2 2021, Berkshire Hathaway holds 327,100 shares in Johnson & Johnson, worth $53.8 million. The company represents 0.01% of the hedge fund’s 13F portfolio. Recently, Johnson & Johnson made waves in the media as the company’s booster shot against Covid-19 is said to provide 94% protection for two months after the first dose.
In September, Wells Fargo lifted its price target on Johnson & Johnson to $187, while keeping an ‘Equal Weight’ rating on the shares. The company has a track record of 59 years of consistent dividend growth and currently pays an annual dividend of $4.24 per share, yielding 2.65%.
Of the 873 hedge funds tracked by Insider Monkey, 88 hedge funds have positions in Johnson & Johnson, up from 81 in the previous quarter. The total value of these stakes is over $7.05 billion.
Like Bank of America Corporation, The Kraft Heinz Company, Verizon Communications Inc., U.S. Bancorp, and DaVita Inc., Johnson & Johnson is also one of Buffett’s notable stock picks in Q2.
Distillate Capital mentioned Johnson & Johnson in its Q2 2021 investor letter. Here is what the firm has to say:
“The largest additions in the rebalance, Johnson & Johnson was around 50 and 40 basis points incrementally. J&J underperformed in the quarter while its normalized free cash flows held steady and so its position size was topped off to match the stable cash flows.”
7. General Motors Company (NYSE:GM)
Berkshire Hathaway’s Stake Value: $3,550,200,000
Percent of Berkshire Hathaway 13F Portfolio: 1.21%
Number of Hedge Fund Holders: 86
PE Ratio (TTM): 6.71
General Motors Company (NYSE:GM) is an American automotive manufacturing company. The company has distribution and manufacturing plants throughout the U.S., Canada, and other countries. General Motors Company ranks seventh on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway owns 60 million shares in General Motors Company, valued at over $3.5 billion. The company accounts for 1.21% of the hedge fund’s 13F portfolio. Recently, Citigroup lifted its price target on General Motors Company to $90, while keeping a ‘Buy’ rating on the shares. The company’s quarterly dividend stands at $0.38 per share, yielding 4.51%. Since the beginning of the year, General Motors Company delivered a 44.7% return to shareholders, while its 12-month returns came in at 81.99%.
As of Q2 2021, 86 hedge funds tracked by Insider Monkey have positions in General Motors Company, the same as in the previous quarter. The total value of these stakes is over $7.4 billion.
Worm Capital LLC mentioned General Motors Company in its recently published Q3 2021 investor letter. Here is what the firm has to say:
“Now, when it comes to valuation of these business models, during periods of relative industrial stability, it makes sense to value them as a multiple of an historic metric—earnings, cash flow, etc.
But we’re not living in a period of relative industrial stability. We’re living through industrial chaos, and so an investor’s valuation strategy must adapt as well. We need to look forward to find value—not backwards. In other words, it’s silly to value a business as a multiple of historic cashflows if there exist high odds that those cashflows will diminish significantly over time—and potentially very quickly. Certain businesses—because of their inability to adapt and innovate—should arguably be valued at near-zero today, at least until they can at least prove they have an ability to compete and generate meaningful cashflows in the future.
General Motors is, in our opinion, one of those businesses—it’s a prime example of a mature business model that could face obsolescence. We’ve been writing about this dynamic since 2017 (see: Why General Motors Has Already Lost to Tesla) but this quarter— with a $2 billion recall of every single Chevrolet Bolt ever produced—was an early indication of what may lie ahead the future for General Motors.
Our view is that GM—and many of its incumbent peers—are simply not structured to aggregate marginal gains to its new line of EVs. Here’s a quick example of how this plays out: Our rough estimation is that GM continues to lose about $8,000 for every Bolt it sells. The company has sold about 142,000 Bolt vehicles since production began in late 2016. (By comparison, Tesla delivered more than 240,000 vehicles this quarter alone—at around 30% gross margins.)
With the recent $2 billion recall for 142,000 Bolts, that represents a cost of about $14,000 to fix each vehicle. If GM was already losing $8,000 per Bolt, that puts the retroactively implied Bolt gross margin at a loss of more than ($-22,000) per vehicle, or an implied (-63%) gross margin profile per car produced.”
6. The Bank of New York Mellon Corporation (NYSE:BK)
Berkshire Hathaway’s Stake Value: $3,706,871,000
Percent of Berkshire Hathaway 13F Portfolio: 1.26%
Number of Hedge Fund Holders: 52
PE Ratio (TTM): 14.39
The Bank of New York Mellon Corporation (NYSE:BK) ranks sixth on our list of the best value stocks to buy according to Warren Buffett. It is an American investment banking services company, which was formed by the merger of The Bank of New York and the Melon Financial Corporation in 2007.
As of Q2 2021, Berkshire Hathaway owns over 72.3 million shares in The Bank of New York Mellon Corporation, valued at $3.7 billion. The company represents 1.26% of the hedge fund’s 13F portfolio. Recently, Citigroup lifted its price target on The Bank of New York Mellon Corporation to $60, with a ‘Buy’ rating on the shares, highlighting the company’s near-term growth trajectory.
The company has a trailing-twelve-month P/E ratio of 14.39. The Bank of New York Mellon Corporation pays an annual dividend of $1.36 per share, yielding 2.45%. In the past year, the stock returned 47.9% to its shareholders.
As of Q2 2021, 52 hedge funds tracked by Insider Monkey have positions in The Bank of New York Mellon Corporation, up from 49 in the previous quarter. The total value of these stakes is over $4.9 billion.
5. DaVita Inc. (NYSE:DVA)
Berkshire Hathaway’s Stake Value: $4,346,990,000
Percent of Berkshire Hathaway 13F Portfolio: 1.48%
Number of Hedge Fund Holders: 39
PE Ratio (TTM): 14.79
DaVita Inc. is an American healthcare company that specializes in providing kidney dialysis services to patients suffering from chronic kidney diseases. The company stands fifth on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway holds over 36 million shares in DaVita Inc., valued at $4.34 billion. The company accounts for 1.48% of the hedge fund’s 13F portfolio. In Q2 2021, DaVita Inc. posted a GAAP EPS of $2.46, beating the estimates by $0.68. The company’s revenue for the quarter stood at $2.92 billion, up 2% from the prior-year quarter. This September, Cowen initiated its coverage on DaVita Inc. with a ‘Market Perform’ rating and a $145 price target. The company’s trailing-twelve-month P/E ratio stands at 14.79.
As of Q2 2021, 39 hedge funds tracked by Insider Monkey have positions in DaVita Inc., up from 34 in the previous quarter. The total value of these stakes is over $5.1 billion.
4. U.S. Bancorp (NYSE:USB)
Berkshire Hathaway’s Stake Value: $7,342,802,000
Percent of Berkshire Hathaway 13F Portfolio: 2.5%
Number of Hedge Fund Holders: 41
PE Ratio (TTM): 13.16
U.S. Bancorp is an American bank holding company that offers financial services to its consumers. The company ranks fourth on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway owns approximately 129 million shares in U.S. Bancorp, valued at over $7.3 billion. The company represents 2.5% of the hedge fund’s 13F portfolio. Recently, Jefferies lifted its price target on U.S. Bancorp to $71, with a ‘Buy’ rating on the shares. The company pays an annual dividend of $1.84 per share, yielding 2.96%. In the past year, U.S. Bancorp delivered a 55.4% return to shareholders.
As of Q2 2021, 41 hedge funds tracked by Insider Monkey have positions in U.S. Bancorp, compared with 43 in the previous quarter. The total worth of these stakes is over $8.3 billion.
3. Verizon Communications Inc. (NYSE:VZ)
Berkshire Hathaway’s Stake Value: $8,898,941,000
Percent of Berkshire Hathaway 13F Portfolio: 3.03%
Number of Hedge Fund Holders: 63
PE Ratio (TTM): 10.64
Verizon Communications Inc. is an American multinational telecommunication company, which ranks third on our list of the best value stocks to buy according to Warren Buffett.
As of Q2 2021, Berkshire Hathaway holds 158.8 million shares in Verizon Communications Inc., valued at over $8.89 billion. The company represents 3.03% of the hedge fund’s 13F portfolio. On September 2, Verizon Communications Inc. announced a 2% increase in its quarterly dividend to $0.64 per share, yielding 4.66%. This July, JPMorgan raised its price target on Verizon Communications Inc. to $65, while keeping an ‘Overweight’ rating on the shares. The company has a trailing-twelve-month P/E ratio of 10.64.
As of Q2 2021, 63 hedge funds tracked by Insider Monkey have positions in Verizon Communications Inc., down from 69 in the previous quarter. The total value of these stakes is approximately $11 billion.
Miller/Howard Investments mentioned Verizon Communications Inc. in its Q1 2021 investor letter. Here is what the firm has to say:
“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”
2. The Kraft Heinz Company (NASDAQ:KHC)
Berkshire Hathaway’s Stake Value: $13,279,388,000
Percent of Berkshire Hathaway 13F Portfolio: 4.53%
Number of Hedge Fund Holders: 33
PE Ratio (TTM): 20.5
The Kraft Heinz Company stands second on our list of the best value stocks to buy according to Warren Buffett. It is an American food company that owns over 40 brands. The company is one of the largest food companies in the world.
As of Q2 2021, Berkshire Hathaway owns over 325.6 million shares in The Kraft Heinz Company, valued at $13.2 billion. The company represents 4.53% of the fund’s 13F portfolio. In Q2 2021, The Kraft Heinz Company posted an EPS of $0.78, beating the estimates by $0.06. The company’s revenue for the quarter stood at $6.62 billion, surpassing the consensus by $70 million. The company pays an annual dividend of $1.60, yielding 4.34%. In September, Morgan Stanley initiated its coverage on The Kraft Heinz Company with an ‘Equal Weight’ rating and a $37 price target. In the past year, the stock returned 16.4%.
As of Q2 2021, 33 hedge funds tracked by Insider Monkey have positions in The Kraft Heinz Company, the same as in the previous quarter. The total value of these stakes is over $13.5 billion.
1. Bank of America Corporation (NYSE:BAC)
Berkshire Hathaway’s Stake Value: $41,646,448,000
Percent of Berkshire Hathaway 13F Portfolio: 14.21%
Number of Hedge Fund Holders: 87
PE Ratio (TTM): 14.40
Bank of America Corporation tops our list of the best value stocks to buy according to Warren Buffett. It is an American multinational investment bank that also offers financial services to its consumers.
As of Q2 2021, Bank of America Corporation is the second-largest holding of Berkshire Hathaway as the hedge fund owns over 1 trillion shares in the company, valued at $41.6 billion. The company accounts for 14.21% of the fund’s 13F portfolio. In Q2 2021, Bank of America Corporation posted a GAAP EPS of $1.03, beating the estimates by $0.26. In September, Odeon Capital group upgraded Bank of America Corporation to ‘Buy’, with a $46.50 price target. Since the beginning of the year, the stock has delivered a 44.99% return to shareholders, while it gained 74.51% in the past year.
As of Q2 2021, 87 hedge funds tracked by Insider Monkey have positions in Bank of America Corporation, compared with 97 in the previous quarter. The total value of these stakes is over $46.5 billion.
ClearBridge Investments mentioned Bank of America Corporation in its Q1 2021 investor letter. Here is what the firm has to say:
“Higher long-term interest rates supported financials such as Bank of America, which has shown both defensive and offensive characteristics in the past year. We believe it continues to be the least risky large bank from a credit standpoint, with conservative underwriting and controlled risk taking, a leading consumer deposit franchise, scale and technology. It is also a leader in its commitments to sustainability, or as it terms it, responsible growth. Disclosure and reporting at all levels form a large part of this commitment, including gender diversity and equality, environmental commitments and support of communities in which it operates. In the first quarter Bank of America announced it is setting a goal of net-zero greenhouse gas (GHG) emissions in its supply chain and operations, and notably also in its financing activities, before 2050.”
You can also take a look at 12 Best Value Dividend Stocks to Buy Now and Top 10 Undervalued Tech Stocks
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This article is originally published at Insider Monkey.
