You can (usually) never go wrong aligning your portfolio with legendary investors, which brings us to undervalued Warren Buffett stocks. To be quite blunt, not everyone trusts the top holdings of the Oracle of Omaha’s conglomerate firm Berkshire Hathaway (NYSE:BKR-B). However, these ideas could be enticing because of their objective value proposition.
Here, we’re going to be using standard financial metrics – no goofy “modeling” with numbers coming from “who knows where” baked into a formula of dubious relevance. Nor am I proposing a discount against some fantastical notion that only I believe in. Instead, for the below Warren Buffett stocks to buy, we’re focusing on earnings multiples, price-to-sales ratios (P/S), these types of metrics.
Of course, you’ll want to conduct your own research. No one person, no one source should be your deciding factor. That said, the Oracle has been doing this for a long time. If you’re ready to rock, these are the undervalued Warren Buffett stocks to buy now.
Warren Buffett Stocks: American Express (AXP)
I’ve mentioned American Express (NYSE:AXP) recently, and while I don’t mean to double dip the financial services firm so soon, I do find it interesting that it’s one of the top Warren Buffett stocks. Per data from CNBC, AXP represents 7% of Berkshire’s portfolio. As a credit card provider, American Express offers cynical relevance during these troubled times. However, it also caters to a wealthier clientele and therein lies the rub.
Fundamentally, would rich folks even get themselves into debt, especially the plastic kind? While the social elites will never sweat economic woes, the working rich (people who are relatively well off but still need to make a living) might. Certain evidence, such as the average age of passenger vehicles on U.S. roadways hitting a record 12.5 years suggests that a great many people are finding ways to save.
And that might mean more plastic use to keep up certain lifestyle ambiances. Now, analysts aren’t fully convinced, pegging AXP a consensus hold. Still, AXP features solid long-term revenue growth yet trades at only 2.12x trailing sales, below 63% of its peers. Thus, it’s one of the undervalued Warren Buffett stocks to buy.
Kraft Heinz (KHC)
For a man in his 90s, you’d think that the Oracle would adhere to a religious health regimen. Surprisingly, though, the opposite is true, with the legendary investor a fan of junk food (and beverages). So, I’m not entirely shocked that Kraft Heinz (NASDAQ:KHC) represents one of the top Warren Buffett stocks. It fits with the modus operandi.
However, KHC hasn’t been doing so well this year, losing about 18% since the Jan. opener. In the trailing one-year period, shares slipped more than 12%. In fairness, the food and condiments producer needs to up its operational stats. For example, Kraft’s three-year revenue growth rate (per-share basis) is only 1.9%, worse than 66% of its peers.
At the same time, those seeking legitimate undervalued Warren Buffett stocks to buy now may be intrigued with KHC. Presently, the market prices shares at a forward multiple of only 11.53x. As a discount to projected earnings, Kraft ranks better than 76.52% of its peers.
Citigroup (C)
If you peruse the top Warren Buffett stocks, you’re not going to find too many discounted market ideas. Generally, the Oracle prefers to target established businesses with a steady, predictable nature. About the sexiest idea you may find here in terms of risk-reward profile is Citigroup (NYSE:C). It’s an intriguing idea among the big banks but it also presents some questions.
On the positive side, with Citigroup leveraging a massive footprint, it should be relatively insulated from banking sector woes. Also, it flies under the radar compared to its peers. As a result, the market prices C stock at a forward multiple of 7.12x. In contrast, the sector median for the banking industry stands at 8.21x. Plus, C trades at 0.5x tangible book value, which is incredibly undervalued.
Now, you have to be careful with valuation metrics with banks because of the uncertainty of projections in this space. More significantly, Citigroup’s non-interest income slipped more than 27% year-over-year in the second quarter to $5.54 billion. That’s not very encouraging and may be why Buffett only has 0.7% portfolio exposure to Citigroup. Still, if you’re looking for high value, this could be one of the Warren Buffett stocks to buy.
— Josh Enomoto
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Source: Investor Place