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Warren Buffett’s Latest Portfolio: 10 Undervalued Stock Picks

·10 min read

In this article, we discuss 10 undervalued stock picks from Warren Buffett’s latest portfolio. You can skip our discussion on Buffett’s recent investment decisions and go directly to Warren Buffett’s Latest Portfolio: 5 Undervalued Stock Picks.

Warren Buffett will turn 92 years old on August 30, and the billionaire is showing no signs of a slowdown in his roles as the CEO and Chairman of diversified conglomerate Berkshire Hathaway Inc (NYSE:BRK-B). However, given his age, the company has announced Greg Abel, the 60-year-old Vice Chairman of energy and all non-insurance business units, as the Oracle of Omaha’s eventual successor. Buffett has generated an average annualized return of 20.1% for the shareholders of the Omaha, Nebraska-based company since he became its CEO in 1965.

Buffett has been bullish on the oil and gas sector, as he received government approval to increase his stake in Occidental Petroleum Corporation (NYSE:OXY) to up to 50% on August 19. He is making this investment at a time when global efforts are being made to transition towards green energy and lower carbon emissions. Governments around the world are encouraging people to buy electric vehicles by offering them subsidies in an effort to convince them to switch away from conventional fuel-powered engines. Furthermore, a similar shift can be found in the power generation sector.

However, the conflict between Russia and Ukraine brought crude oil prices into the limelight and caused them to reach a 13-year high of over $130 per barrel in early March 2022. Buffett asserts that he is a pragmatist in the discussion surrounding fossil fuels. His exposure in the energy sector ranges from utilities to the renewable industry. At a Berkshire Hathaway investor meeting in 2021, he declared, “People that are on the extremes of both sides are a little nuts.”

During the second quarter, Berkshire Hathaway recorded net stock acquisitions of roughly $3.8 billion. While in the first quarter of the year, the firm purchased more than $40 billion worth of shares. The renowned investor’s inclination to keep investing suggests that he continues to have faith in the direction that the U.S. economy is headed. Some of the notable companies Buffett has a stake in as of Q2 2022 include Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Chevron Corporation (NYSE:CVX).

Warren Buffett's Latest Portfolio: 10 Dividend Stock Picks
Warren Buffett's Latest Portfolio: 10 Dividend Stock Picks

Our Methodology

We have picked these stocks from Warren Buffett’s Berkshire Hathaway’s Q2 2022 portfolio. Out of the 10 stocks, four stocks belong to the financial sector. The short-listed stocks have a one-year forward P/E multiple of lower than 15-times. We have ranked the companies in accordance with Berkshire Hathaway’s stake in them during the second quarter.

Warren Buffett’s Latest Portfolio: 10 Undervalued Stock Picks

10. The Kroger Co. (NYSE:KR)

 

Number of Hedge Fund Holders: 45

 

1-Year Forward P/E Ratio: 12.61x

 

Warren Buffett’s Berkshire Hathaway’s Holdings: $2,481,858,000

 

Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 0.82%

The Kroger Co. (NYSE:KR) is a Cincinnati, Ohio-based operator of supermarket and multi-department retail stores across the U.S.

The company’s one-year forward P/E multiple of 12.6x reflects a steep discount of 36.4% compared to the consumer staples sector’s median one-year forward P/E multiple of 19.8x. The Kroger Co. (NYSE:KR) stock also offers a forward dividend yield of 2.1% as of August 25. Experts believe the company has a distinguishable business model compared to its competitors due to its extensive fuel rewards system and leading private label program.

The Kroger Co. (NYSE:KR) is considered the ninth-biggest consumer packaged goods entity in the U.S. and has four brands under its umbrella that have annual sales of over $1 billion each. This is playing in the company’s favor, as people are trying to reduce their cost of traveling and food expenditures during the current inflationary period.

At the of Q2 2022, 49 hedge funds held a stake in The Kroger Co. (NYSE:KR), up from 45 in the preceding quarter.

9. Citigroup Inc. (NYSE:C)

 

Number of Hedge Fund Holders: 88

 

1-Year Forward P/E Ratio: 7.00x

 

Warren Buffett’s Berkshire Hathaway’s Holdings: $2,536,616,000

 

Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 0.84%

Citigroup Inc. (NYSE:C) is a New York-based diversified banking, financial services, and wealth management corporation.

Presently, the company’s one-year forward P/E ratio of 7x is 29% lower than its average five-year forward P/E multiple of 10.1x. Furthermore, Citigroup Inc. (NYSE:C) stock is trading at a discount of over 30% compared to the Financial Sector’s median P/E of 10.2x.

In a note issued to investors on July 18, Citigroup Inc. (NYSE:C) stock was given a target price of $86 along with an 'Outperform' rating by Chris Kotowski at Oppenheimer. The analyst highlighted that the company has a tangible book value of $80 per share. Furthermore, Citigroup Inc. (NYSE:C) has a tidy balance sheet, with accruals accounting for just 0.5% of its total loan portfolio. The analyst also added that the company could generate healthy returns for shareholders over the long term.

Citigroup Inc. (NYSE:C) was discussed in the Q1 2022 investor of Diamond Hill Capital. Here’s what the firm said:

“Shares of Citigroup declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”

8. DaVita Inc. (NYSE:DVA)

 

Number of Hedge Fund Holders: 35

 

1-Year Forward P/E Ratio: 11.86x

 

Warren Buffett’s Berkshire Hathaway’s Holdings: $2,886,202,000

 

Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 0.96%

DaVita Inc. (NYSE:DVA) is a Denver, Colorado-based provider of dialysis care to more than 200,000 patients in the U.S. and ten other countries. DaVita Inc.’s (NYSE:DVA) forward P/E multiple of 11.9x represents a discount of 39% and 16%, respectively, against the healthcare sector's median forward P/E  multiple of 19.6x and DaVita’s five-year average forward P/E multiple of 16.3x.

On August 19, Andrew Mok at UBS upgraded DaVita Inc. (NYSE:DVA) stock from 'Neutral' to 'Buy' and increased the target price from $106 to $117. Mok believes that DaVita Inc. (NYSE:DVA) stock offers potential investors an attractive risk/reward profile. He anticipates growth in the company’s operating income in 2023 due to the strong implementation of cost-saving initiatives. Furthermore, Mok anticipates a multiple re-rating later this year as the dialysis legislation H.R 8594 moves forward to the legislative committees.

Of the 895 hedge funds in Insider Monkey’s database that filed 13Fs for the Q2 reporting period, DaVita Inc. (NYSE:DVA) was held by 35 hedge funds at the end of Q2 2022.

7. The Bank of New York Mellon Corporation (NYSE:BK)

 

Number of Hedge Fund Holders: 54

 

1-Year Forward P/E Ratio: 10.03x

 

Warren Buffett’s Berkshire Hathaway’s Holdings: $3,018,027,000

 

Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 1%

The Bank of New York Mellon Corporation (NYSE:BK) is a New York-based diversified financial services firm with $43 trillion worth of assets under its custody, assets under management of over $1.9 trillion, and a presence in over 35 countries.

The Bank of New York Mellon Corporation (NYSE:BK) has the distinction of being the biggest custodian bank in the world in terms of assets under administration. This gives the bank an absolute advantage in terms being able to lower its fees due to its business scale. The bank’s P/E multiple of 10.2x represents a discount of over 14% against its five-year average forward P/E multiple of 14.1x.

The Bank of New York Mellon Corporation (NYSE:BK) is also diversifying into emerging blockchain technology, which could provide new growth avenues for the corporation. Blockchain technology is gaining more momentum with every passing day as investors are taking a keen interest in the blockchain and cryptocurrency universes.

Ariel Investments shared its stance on The Bank of New York Mellon Corporation (NYSE:BK) in its Q4 2021 investor letter. Here’s what the firm said:

“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.

This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. Smaller positions in The Bank of New York Mellon Corporation (BK) also benefited from higher rates, principally with their ability to invest customer cash.”

Harris Associates increased its stake in The Bank of New York Mellon Corporation (NYSE:BK) by 33% during the second quarter of the year.

6. HP Inc. (NYSE:HPQ)

 

Number of Hedge Fund Holders: 35

 

1-Year Forward P/E Ratio: 8.06x

 

Warren Buffett’s Berkshire Hathaway’s Holdings: $3,424,725,000

 

Percentage of Warren Buffett’s Berkshire Hathaway’s Portfolio: 1.14%

HP Inc. (NYSE:HPQ) is a Palo Alto, California-based technology company with a history that spans more than eight decades. The company is now a globally renowned seller of laptops, desktop computers, printers, and other accessories.

HP Inc.’s (NYSE:HPQ) forward P/E of 8.1x is 15.3% lower than the company’s five-year average forward P/E multiple of 9.5x. Meanwhile, against the broader technology sector, HP Inc.’s (NYSE:HPQ) forward P/E ratio reflects a discount of 58.13%.

Shannon Cross at Credit Suisse initiated coverage on HP Inc. (NYSE:HPQ) stock with an 'Outperform' rating and a target price of $39 in a research note issued to investors on August 16. The target price reflects potential upside of over 13% from the closing price as of August 25. The analyst believes that HP Inc. (NYSE:HPQ) is gaining more market share and has a strong backlog in the PC market. Furthermore, the richer configurations offered by HP will boost the company's margins by nearly 6%.

Berkshire Hathaway was the leading hedge fund investor in HP Inc. (NYSE:HPQ) during Q2 2022, with a holding of over 104 million shares.

In addition to HP Inc. (NYSE:HPQ), Warren Buffett’s portfolio also includes stocks like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Chevron Corporation (NYSE:CVX) as of June 30.

 

Click to continue reading and see Warren Buffett’s Latest Portfolio: 5 Undervalued Stock Picks.

 

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Disclose. None. Warren Buffett’s Latest Portfolio: 10 Undervalued Stock Picks is originally published on Insider Monkey.