Over the last year or so, Berkshire has been a significant buyer of oil and gas refining spinout Phillips 66 (NYSE:PSX) and owned more than 27 million shares per the 13F. Downstream energy companies are particularly cheap under current market conditions, at least in terms of their financials, and Phillips 66 is no exception as both the trailing and forward P/E multiples come in at 9. Sell-side consensus in terms of earnings growth implies a five-year PEG ratio of 0.8, even after the stock has more than doubled in price in the last year. We think Phillips 66 is an interesting target for further research, and as most post-split companies, the potential for market-outperformance exists up to 36 months after the spinoff.
The company’s former parent, ConocoPhillips (NYSE:COP), is another of Buffett’s cheap stock picks. The oil and gas company posts an earnings multiple of 11, whether we consider trailing numbers or forecasts for 2014. ConocoPhillips also looks like it could make for an interesting income stock, with recent quarterly dividend payments of 66 cents per share resulting in a yield of over 4%, though of course investors would have to deal with commodity price risks. It could be a good value prospect, though we’d note that peers such as BP or Exxon Mobil also offer low multiples, high yields, or both.
Berkshire Hathaway maintained a stake of 25 million shares in General Motors Company (NYSE:GM) during the first quarter of 2013. Automakers are popular value stocks, and Buffett seems to like GM in particular. Analysts also like the stock: the forward earnings multiple is 8 (incorporating expectations of significant increases in EPS) and the five-year PEG ratio is 0.6. We do think that auto related stocks are at least possible value plays, but in the case of General Motors we’d be somewhat concerned by the fact that revenue and net income both fell in Q1 2013 versus a year earlier.
Final thoughts
Unlike many mega-investors, which use their capital to uncover hidden gems in the financial markets, Warren Buffett couldn’t be invested in equities that are any more visible. If it isn’t broke, though, why fix it? From GM to the banks U.S. Bancorp and Wells Fargo, to post-split darlings ConocoPhillips and Phillips 66, there’s solid value at every turn.
In short, there aren’t many—if any—investors we’d recommend piggybacking based on sheer intelligence, but Buffett is the man to watch. If he’s bullish, there’s at least a compelling reason why you should be too, and judging by each of the five stocks mentioned above, there’s potential for value-based appreciation moving forward.
Disclosure: I own no shares of any stocks mentioned in this article.
