In this article, we discuss the 12 cheap value stocks to buy according to Warren Buffett. If you want to skip our discussion, go directly to 5 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).
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Disclosure: None. 12 Cheap Value Stocks to Buy According to Warren Buffett is originally published on Insider Monkey.