In this article, we’re going to talk about the 10 cheap value stocks to invest in according to Warren Buffett.
Has Warren Buffett given up on stocks amid overstretched valuations? That’s the big question, as the “Oracle of Omaha” has been a net seller in recent months. Buffett and his top advisors, Todd Combs and Ted Weschler, have sold $166.2 billion, more stock than they have bought over the last eight reported quarters.
The selloff spree has seen Berkshire Hathaway’s cash pile swell to over $325 billion, with more than $288 billion invested in Treasuries. The adjustments come amid growing concerns that the stock market has become pricey, making it difficult to find anything of value to buy at discounted valuations.
Some of the selloffs also came amid concerns that corporate income taxes would climb with the continuation of a democrat administration. However, that is not expected to happen with Republicans controlling both houses of Congress and Donald Trump at the helm.
READ ALSO: 10 Best Blue Chip Stocks to Buy for 2025 and Billionaire Israel Englander’s Top 10 Stock Picks Heading Into 2025.
While Buffett has been a net seller in recent months, the actions point to the billionaire investor accumulating capital to pursue cheap stocks once the current correction ends. An optimist in his own right, Buffett has always insisted that even the worst recessions are only temporary and investors can find silver linings at depressed valuations.
While the stock market is still on an upswing, a fantastic buy opportunity should emerge when stock prices fall, according to the billionaire investor.
“[I]n the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank,” he explained. “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price,” Buffett said.
Warren Buffett, “the Oracle of Omaha,” will go down in history as one of the most effective and successful value investors of all time. In the six decades that he has graced the ups and downs of Wall Street, his investment and holding company Berkshire Hathaway has cumulatively gained 5,500,000%. The fact that the investment firm is up by about 115% over the past five years affirms why Buffett is still a force to reckon with.
Nevertheless, the billionaire investor known for a value investing strategy that focuses on buying undervalued securities and holding them long-term appears to be slowly exiting the active investing fray. The 94-year billionaire investor has already named his middle son, Howard Buffett, his successor. Howie is tasked with steering the multibillion-dollar conglomerate Berkshire Hathaway as a non-executive chairman.
When asked why he settled on Howie, Buffett was clear: “He is getting it because he’s my son. I’m very, very, very lucky in the fact that I trust all three of my children,” he told the Wall Street Journal.
As Warren Buffett exits the stage, all eyes are on Howie to ensure Berkshire Hathaway, with over $1 trillion, continues to thrive. The holding company with one of the most diversified investment portfolios has enjoyed a compound annual growth rate of 19.8% compared to 10.2% for the S&P 500 since 1965. Diversification has proved to be a compelling investment play that has allowed Berkshire Hathaway to spread risk and, most importantly, shrug off volatility in some sectors.
While the US stock market has shown signs of exhaustion, resulting in significant pullbacks, Warren Buffett, an eternal optimist, has frequently advised against betting against America. He acknowledges that stock market corrections and US recessions are natural parts of economic cycles. Still, he believes that bull markets and periods of economic growth tend to last longer than downturns.
This belief underpins his continued bullish stance on the US stock market, even as valuations seem stretched after two years of strong rallies driven by the AI boom and a resilient economy. Despite high valuations, Buffett continues to add to positions he believes will outperform while trimming others.
Even though Buffett has been a net seller over the past two years, he has continued to bolster holdings in stocks that he believes are fairly valued. Consequently, according to Warren Buffett, the 10 cheap value stocks to invest in are those of time-tested businesses well poised to generate significant shareholders in the long run.
Our Methodology
To make the list of 10 cheap value stocks to invest in according to Warren Buffett, we scanned Berkshire Hathaway’s investment portfolio. The focus was on stocks trading with a forward price-to-earnings multiple of less than 15, as of January 10. We then settled on the top ten holdings with low P/E and examined why they stand out as value investments. Finally, we ranked the stocks in ascending order based on Berkshire Hathaway’s stake in them.
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10 Cheap Value Stocks to Invest In According To Warren Buffett
10. Charter Communications, Inc. (NASDAQ:CHTR)
Forward Price to Earnings Ratio: 9.06
Berkshire Hathaway Stake Value: $914.51 Million
Number of Hedge Fund Holders: 61
Charter Communications, Inc. (NASDAQ:CHTR) is a communication services company that serves residential and commercial customers as a broadband connectivity and cable operator. After going down by about 8% in 2024, it has emerged as a dirt cheap value stock to invest in, according to Warren Buffett.
The government’s initiative to enhance broadband access to rural areas supports the company’s long-term prospects, which is expected to provide new growth opportunities. Charter Communications, Inc. (NASDAQ:CHTR) has been making significant investments in plant upgrades and rural build-outs, which are anticipated to fuel the expansion of broadband subscribers in the upcoming years. According to analysts, these investments will reach their peak in 2025. Following that, a decline in capital intensity is expected, which could result in better free cash flow generation.
Backed by a customer base of about 32 million residential and business customers across the US, Charter Communication’s broadband internet and wireless phone services are poised to receive a boost with the expansion drive. Similarly, the expansion drive should strengthen the company’s competitive edge in a market always under pressure from fibre-optic and fixed wireless access (FWA) providers.
The efforts are already bearing fruit, as the company’s service revenue increased by 37.9% in the third quarter. In addition, Charter Communications, Inc. (NASDAQ:CHTR) is gaining traction on the advertising front, and its ads revenue has grown by 17.7%. The growth affirms how the company is increasingly diversifying its revenue base as it also pursues growth opportunities in rural areas.
Weitz Large Cap Equity Fund stated the following regarding Charter Communications, Inc. (NASDAQ:CHTR) in its Q3 2024 investor letter:
“We trimmed the Fund’s positions in Meta Platforms, S&P Global, and Charter Communications, Inc. (NASDAQ:CHTR) after significant runs in the stocks. Charter posted better-than-feared quarterly results, and the stock rebounded sharply from what we viewed as deeply oversold levels. A good start, but they still have much work to do. As always, our goal with trims is to re-calibrate position sizes to better reflect the Fund’s current opportunity set.”
9. Ally Financial Inc. (NYSE:ALLY)
Forward Price to Earnings Ratio: 7.28
Berkshire Hathaway Stake Value: $1.03 Billion
Number of Hedge Fund Holders: 56
Ally Financial Inc. (NYSE:ALLY) is a digital financial services company that provides financial products and services. It is one of Warren Buffett’s top holdings for exposure in the auto financial sector as an all-digital bank focusing on customers with low fees and high saving rates. Likewise, it is a cheap value stock to invest in as it trades at a discount with a price-to-earnings multiple of 7.28.
While the stock has underperformed in recent months, it remains a top pick owing to its exposure to the auto lending business, which can be highly profitable. The fact that an average auto loan yields 10.5% leaves Ally Financial Inc. (NYSE:ALLY) in a solid position to continue generating significant interest income even with the Fed cutting the benchmark rate. Management expects to add about 80 basis points to the net interest margin as the deposit costs drop.
Ally Financial Inc. (NYSE:ALLY) may also benefit greatly as rates decline. It currently has a 4.2% deposit cost, but if the Fed continues to lower rates, that could drop considerably. Although the bank’s net interest margin is currently a healthy 3.22%, management anticipates that figure will rise to 4% or more in the medium run.
Here is what Delaware Ivy Core Equity Fund stated the following regarding Ally Financial Inc. (NYSE:ALLY) in its Q3 2024 investor letter:
“Ally Financial Inc. (NYSE:ALLY) is primarily an auto lender with solid longer-term returns. As a company dependent on funding its balance sheet (loans) through higher-cost consumer deposits, it will likely be a beneficiary of lower short-term interest rates. Ally has seen consumer delinquency rates and bad debt reserves within its auto lending portfolio increase, causing weakness in earnings and the share price, leading to an opportunity to purchase the shares amid considerable dispute.”