In this article, we discuss 5 undervalued stock picks in Warren Buffett’s latest portfolio. If you want to read our discussion on Buffett’s recent investment decisions, go directly to Warren Buffett’s Latest Portfolio: 10 Undervalued Stock Picks.
5. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 40
1-Year Forward P/E Ratio: 11.05x
Warren Buffett’s Berkshire Hathaway’s Holdings: $5,513,432,000
Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 1.83%
U.S. Bancorp (NYSE:USB) is a Cincinnati, Ohio-based consumer bank that happens to be the fifth-biggest banking institution in the U.S.
Against its five-year average forward P/E ratio of 12.9x, U.S. Bancorp (NYSE:USB) stock is trading at a discount of almost 13%. Furthermore, U.S. Bancorp (NYSE:USB) shares offer an attractive forward dividend yield of 3.88% as of August 25.
Experts believe that the bank is operated conservatively and has the ability to report above-average growth in loans and interest income even in an uncertain economic environment. U.S. Bancorp (NYSE:USB) anticipates a strong loan pipeline during the second half of the year as companies seek to fulfill their working capital requirements. Furthermore, the completion of the Union Bank acquisition during the last months of 2022 will provide synergy benefits in 2023.
ClearBridge Investments shared its stance on U.S. Bancorp (NYSE:USB) in its Q4 2021 investor letter. Here’s what the firm said:
“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.”
4. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
1-Year Forward P/E Ratio: 6.96x
Warren Buffett’s Berkshire Hathaway’s Holdings: $9,335,408,000
Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 3.11%
Occidental Petroleum Corporation (NYSE:OXY) is a Houston, Texas-based energy exploration and production company.
The company is transitioning toward the development of new technologies related to zero-carbon emissions. Occidental Petroleum Corporation’s (NYSE:OXY) construction of its first air capture plant in Ector Country, Texas, is going as per plan, according to Michael Sciallia at Stifel. The analyst gave Occidental Petroleum Corporation (NYSE:OXY) stock a ‘Buy’ rating on August 25. The plant will separate carbon dioxide (CO2) from the air and is expected to become operational in late 2024. Occidental Petroleum Corporation (NYSE:OXY) already has contracts for carbon removal credits with Shopify Inc. (NASDAQ:SHOP) and Thermo Fisher Scientific Inc. (NYSE:TMO).
Occidental Petroleum Corporation (NYSE:OXY) stock is trading at a modest forward P/E ratio of 6.96x. This represents a 10.3% discount compared to the energy sector’s forward P/E ratio of 7.76x.
Here’s what Smead Capital Management said about Occidental Petroleum Corporation (NYSE:OXY) in its Q2 2022 investor letter:
“For the quarter, our best-performing stocks were Continental Resources (CLR), Merck (MRK) and Occidental Petroleum Corporation (NYSE:OXY). Despite a steep sell-off in June in the oil and gas stocks, two of our oil stocks made the quarterly list.
If you are wondering how we are outperforming the S&P 500 Index in the first half of the year, look no further than our top three performers. Occidental Petroleum (OXY), Continental Resources (CLR) and Conoco Phillips (COP) soared in value and were barely represented in the S&P 500 Index. To quote Jerry Jones, owner of the Dallas Cowboys, “We are in the first quarter on higher energy prices!”
3. The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 35
1-Year Forward P/E Ratio: 14.51x
Warren Buffett’s Berkshire Hathaway’s Holdings: $12,419,712,000
Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 4.13%
The Kraft Heinz Company (NASDAQ:KHC) is a Chicago, Illinois-based food and beverage company. The entity is the third-biggest in the U.S. food and beverage segment and the fifth-biggest player in the industry globally.
On July 28, Christopher Growe at Stifel upgraded The Kraft Heinz Company (NASDAQ:KHC) stock from ‘Hold’ to ‘Buy’ along with a target price of $43. The analyst suggests accumulating The Kraft Heinz Company (NASDAQ:KHC) stock, as there is a disconnect between the stock price and the company’s strong and improving business fundamentals. Growe believes that the company has pricing control due to inelastic demand for its products. The analyst expects some relief in input prices and the growth of international sales to take the company forward. According to Growe, The Kraft Heinz Company (NASDAQ:KHC) stock is trading at a discount of 15% compared to its peers.
The Kraft Heinz Company (NASDAQ:KHC) was held by 35 hedge funds at the end of Q2 2022.
2. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
1-Year Forward P/E Ratio: 8.58x
Warren Buffett’s Berkshire Hathaway’s Holdings: $23,373,304,000
Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 7.78%
Chevron Corporation (NYSE:CVX) is a San Ramon, California-based integrated energy company with a presence in the upstream, midstream, and downstream segments.
In a note issued to investors on August 22, Phillip Jungwirth at BMO Capital gave Chevron Corporation (NYSE:CVX) stock an ‘Outperform’ rating and a target price of $180. The analyst highlighted the record Q2 2022 results reported by the company due to its strong operational performance in the upstream and downstream segments.
Chevron Corporation’s (NYSE:CVX) focus on the right asset base will help the firm in winning back investors. Furthermore, the positive outlook of crude oil and natural gas prices will aid the company in generating strong free cash flow and healthy shareholder returns in the form of dividends and share buybacks. Chevron Corporation (NYSE:CVX) stock offers an attractive forward dividend yield of 3.62% as of August 25.
In its Q1 2022 investor letter, ClearBridge Investments shared its outlook on Chevron Corporation (NYSE:CVX). Here’s what the firm said:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
Of the 895 hedge funds tracked by Insider Monkey that filed 13Fs for Q2, 53 funds held a stake in Chevron Corporation (NYSE:CVX) as of June 30.
1. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
1-Year Forward P/E Ratio: 10.92x
Warren Buffett’s Berkshire Hathaway’s Holdings: $31,444,432,000
Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 10.47%
Bank of America Corporation (NYSE:BAC) is a North Carolina-based diversified financial services company.
Bank of America Corporation’s (NYSE:BAC) forward P/E multiple of 10.92x reflects a discount of over 13% from its average five-year forward P/E multiple of 12.56x. Mike Mayo at Wells Fargo believes that after going through the data for the last five-to-six decades, it can be concluded that the increase in the benchmark interest rates has a more important correlation with the net interest margins of a bank as compared to the shape of the yield curve. The analyst sees this positive correlation being underappreciated by the broader market. Wells Fargo anticipates the benchmark interest rate to reach the 4% level by the end of 2022. This forecast is higher than the consensus estimates of 3.75%. Mayo has given Bank of America Corporation (NYSE:BAC) an ‘Overweight’ rating.
Here’s what ClearBridge Investments said about Bank of America Corporation (NYSE:BAC) in its Q2 2022 investor letter:
“In the second quarter we made a sizable add to our position in Bank of America (NYSE:BAC) as our bank holdings have significant leverage to rising interest rates. The Fed, unfortunately, was late to realize inflation’s magnitude, maintaining for far too long that inflationary pressures were merely transitory. This mistake caused inflation to accelerate, necessitating a larger intervention than if the Fed had moved sooner.”
For more enticing stock picks, check out the 11 Best Artificial Intelligence Stocks To Buy Now and the Top 8 Stock Picks of Jeff Ubben’s Inclusive Capital.
