10 Best Value Stocks to Buy According to Warren Buffett
In this article we present the list of 10 Best Value Stocks to Buy according to Warren Buffett. Click here to jump straight to the 5 Best Value Stocks Warren Buffett claims to buy.
Warren Buffett, chairman and CEO of $ 524 billion holding company Berkshire Hathaway, is a distinguished investor who has achieved incredible success by adhering to the principles of value investing inherited from his teacher and mentor Benjamin Graham Has.
Our calculations of Buffett's holdings found that his stock selection significantly outperformed the total return of the S&P 500 between 1999 and 2017. Their equally weighted average monthly return over the period was 0.97%, pushing the S&P down 0.38 percentage points. Even as value stocks plummeted over the past decade, Buffett's picks continued to outperform the market, outperforming the S&P by an average of 0.21 percentage points per month between 2008 and 2017.
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Now imagine what the Omaha Oracle could do in a market where stocks of value are actually valued. While that day may not come anytime soon, we have seen the strongest surge in value stocks in the past two decades after the first wave of positive news about coronavirus vaccines in early November.
Warren Buffett from Berkshire Hathaway
With a current P / E of 37.4x, the S&P 500 is more expensive than ever, save for two more points in history: at the height of the tech bubble in the early 2000s and during the 2009 financial crisis, when it briefly reached one Peak at over 123x. However, the current number needs to get its obviously correct context as the revenue has been heavily and, let's say wrongly, hit by the pandemic.
This does not mean that there are no legitimate warning signs that certain parts of the market have been dangerously overvalued, namely growth stocks whose value for money has now surpassed their tech bubble peak. Renewable energies seem to be leading the new bubble. Companies like Plug Power, Inc. (NASDAQ: PLUG) are up over 1,000% this year and are currently growing in several years or even decades.
With that in mind, and Buffett's undeniable ability to invest in all market conditions, it's a good time to add some quality stocks to your portfolio. While there is no clear definition of a value stock, it is generally thought of as one that trades at a lower multiple than the overall market or industry. We will stick to the earlier definition for the purposes of this article.
Only a handful of Buffett's top stocks were not classified as value stocks by this method, namely Apple Inc. (NASDAQ: AAPL) and Charter Communications, Inc. (NASDAQ: CHTR). While Apple is generally viewed as a growth stock anyway, it has been trading on value stocks for a long time, even when Buffett began building an interest in the tech giant in early 2016. However, Apple's valuation has now exceeded 40 times profit. to overshadow the S & P brand.
The following list of Buffett's top value stocks is based on Berkshire Hathaway's most recent 13F filing with the SEC for the September 30th reporting period. We pay close attention to Buffett and the top stock picks in the hedge fund industry as our research has uncovered multiple opportunities for profit from their consensus picks.
Small-cap stocks of hedge funds hit the market in double digits annually between 1999 and 2016, but the margin on outperformance has declined in recent years. Still, we were able to identify a select group of hedge fund holdings in advance that outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see details here). We were also able to pre-identify a select group of hedge fund holdings that had underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly, the underperformance margin of these stocks has increased in recent years. Investors who have been in the market for a long time and sell these stocks would have achieved an annual return of more than 27% between 2015 and 2017. We have been tracking and sharing the list of these stocks in our quarterly newsletter since February 2017.
Now let's take a look at the 10 Best Value Stocks to Buy According to Warren Buffett. Please note that all hedge fund data is based on the exclusive group of more than 800 funds that Insider Monkey pursues as part of our market investment strategy.
10. General Motors Company (NYSE: GM)
Buffett had been involved with General Motors Company (NYSE: GM) since early 2012 and has gradually expanded that position over the years. He bought another 5.32 million GM shares in the third quarter, bringing in Berkshire 80 million shares and a 5.5% stake in the automaker.
Buffett praised Mary Barra, CEO of GM, last year for her “sensational” work, which includes successfully modernizing and strengthening production processes, reducing costly overproduction and suboptimal fleet sales to rental companies, and exiting difficult markets. The initiatives have increased GM's margin expansion and lowered the company's P / E to a little over 18x.
9. The Bank of New York Mellon Corporation (NYSE: BK)
Buffett has been a huge fan of banks for decades and has owned the Bank of New York Mellon Corporation (NYSE: BK) since 2010. Buffett cut several of his bank holdings earlier this year, including BK, and 10% of his holdings discharged BK shares during the second quarter while investing in gold, a signal that the billionaire's money manager doesn't expect a quick economic recovery. Even so, Buffett still owned 72.36 million BK shares, which earned him an 8.17% stake in the investment bank with a P / E ratio of just under 9x.
8. Verisign, Inc. (NASDAQ: VRSN)
Verisign, Inc. (NASDAQ: VRSN) is one of Buffett's lesser-known tech holdings that he has owned since late 2012. Other hedge funds take note of internet infrastructure and domain name registration company, as well as hedge fund ownership, VRSN is up 84% since mid-2018.
Verisign has been very successful in reducing costs and increasing its operating margins over the past several years. The latter mark rose by 4.7 percentage points to 65.4% between 2017 and 2019. As a result, the P / E ratio was even able to increase 31 times that of 2017.The share has gained 185% since the end of 2016.
7. DaVita Inc (NYSE: DVA)
DaVita Inc (NYSE: DVA) is another long-standing Buffett's stake in 2011. He moved 2 million shares off his position in the third quarter and Berkshire got 36.1 million DVA shares and nearly 30 shares % of the healthcare company that operates around 2,700 dialysis clinics in the United States
The company was targeted last year by well-known short seller Jim Chanos, who characterized its reimbursement model as insurance fraud and at risk of regulatory backlash. The market has disagreed so far as DaVita was one of the best performing stocks this year, up 54% and currently trading at 18x earnings.
6. US Bancorp (NYSE: USB)
US Bancorp (NYSE: USB) is another of Buffett's most popular banks and one of the top 10 banking stocks to buy right now. The billionaire money manager owns nearly 132 million USB stocks as of September 30, after cutting stake by just 1% this year.
US Bancorp was hit harder than some of Buffett's other top banking stocks this year, with stocks falling 21%. This is likely due to the lack of investment banking activity, making the company more exposed to interest rates and commercial loans. Even so, USB actually did quite well, increasing its revenue slightly year over year in the third quarter and earning $ 1.40 per share. It trades at 15x earnings and a price-to-book ratio of just 1.47x, well below its five-year average of 1.8x.
Click here to read on and see the 5 Best Value Stocks to Buy According to Warren Buffett. Disclosure: None. According to Warren Buffett, the top 10 stocks to buy are originally published on Insider Monkey.
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