These 3 Warren Buffett Stocks Have a Lower Price-to-Earnings Than the S&P 500. Time to Buy?
Warren Buffett is one of the most closely followed investors in the world. The CEO of Berkshire Hathaway employs a simple investing strategy.
Buffett takes positions in large, blue-chip companies that have built some of the most recognizable brands worldwide. Moreover, these businesses typically generate steady, consistent cash flow and reward investors in the form of dividends or share buybacks.
The three stocks explored below have more in common than just being part of Buffett's portfolio. Each stock trades at a lower price-to-earnings (P/E) multiple than the S&P 500. Do these discounts to the broader market suggest there is some potential for value investors? Let's dig in and find out.
Coca-Cola
The first company on my list is Coca-Cola (NYSE: KO). The beverage maker currently trades at a P/E ratio of 24.4, a noticeable discount to the S&P's 28.2.
I'll admit that Coca-Cola doesn't exactly deliver screaming growth. But there is a reason that Buffett has held the stock for decades. In addition to its soda, Coca-Cola is also home to water, tea, and coffee brands.
This diversified portfolio has helped Coca-Cola expand into new markets and mitigate any losses that may come from changes in consumer preferences or buying trends. As such, Coca-Cola has a long history of steadily growing both sales and profits -- an important pillar of Buffett's investment style.
It's this dynamic that has provided Coca-Cola with the financial flexibility to consistently raise its dividend. In fact, the company is part of the esteemed Dividend Kings club -- reserved for businesses that have raised their dividends for at least 50 years.
So while Coca-Cola may not be the most exciting opportunity in the market, it's hard to pass up on consistency. Investing in financially sound businesses with a strong brand and consistent dividend has done wonders for Buffett. Given the disparity in earnings multiples compared to the broader market, now could be a unique opportunity to scoop up shares in Coca-Cola stock.
SiriusXM
The next company on my list is satellite radio provider SiriusXM (NASDAQ: SIRI). Unlike terrestrial radio businesses that tend to rely on advertising, SiriusXM is unique because of its subscription model. With 34 million subscribers, SiriusXM has built both a leading brand and a predictable revenue model.
With a P/E multiple of just 12.5, SiriusXM appears seriously undervalued. Moreover, considering Buffett just increased his position by 30 million shares, investors might think now is a good opportunity to buy the stock.
But be careful, there's more to the picture here. Since the peak of the COVID-19 pandemic, churn has been an issue at Sirius. Working from home is more common than it was just a few years ago. Moreover, the macro economy is currently experiencing unusually high inflation and rising borrowing costs. These variables have likely played a role in consumer spending habits -- and SiriusXM has not been immune.
Over the last couple of years Sirius has spent significant capital acquiring exclusive rights to podcasts to combat falling engagement -- a strategy that has generated mixed results for competing streaming platform Spotify.
While the stock is trading at a steep discount to the broader markets, I think it's warranted. My suspicion is that Buffett's recent buying activity was an attempt to lower his cost basis. While Sirius could turn the ship around, I wouldn't buy the stock right now.
McDonald's
The last company on my list is fast-food restaurant McDonald's (NYSE: MCD). Now, if you're pouring over Berkshire's regulatory filings, you won't find any trace of a position in McDonald's. Rather, Buffett owns small position in the conglomerate through a separate portfolio managed by New England Asset Management (NEAM), which is a subsidiary of Berkshire. NEAM is smaller than Berkshire asset size, but it holds far more stocks -- giving investors a broader preview of what other businesses Buffett prefers.
I see McDonald's in a similar light as Coca-Cola. The company has a worldwide reach and is a unique business that has the power to grow during different economic cycles. Despite inflation weighing on consumer purchasing power, McDonald's still managed to generate 9% same-store sales growth last year.
Moreover, with a dividend yield of 2.4%, McDonald's stock could also be an option for passive income investors. And with a 24.5 P/E, McDonald's is valued comparably to Coca-Cola based on this metric. This could indicate that investors are broadly viewing the food and beverage sector as a lower-conviction growth opportunity compared to the rest of the market.
I think now could be a good time to consider McDonald's for your portfolio, and plan to hold for the long term.
Should you invest $1,000 in Coca-Cola right now?
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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Spotify Technology. The Motley Fool has a disclosure policy.
These 3 Warren Buffett Stocks Have a Lower Price-to-Earnings Than the S&P 500. Time to Buy? was originally published by The Motley Fool
