10 Cheap Value Stocks to Invest in According to Warren Buffett

2. Chevron Corporation (NYSE:CVX)

Forward Price to Earnings Ratio: 12.72

Berkshire Hathaway Stake Value: $17.47 Billion

Number of Hedge Fund Holders: 63

Chevron Corporation (NYSE:CVX) is an integrated energy company that explores, develops, produces and transports crude oil and natural gas. It is one of the stocks well poised to benefit from friendly policies from Donald Trump’s administration.

Chevron’s edge as one of the best-value stocks stems from its diversified energy business. The company maintains operations upstream, which entails energy production; midstream, which involves operating pipelines; and downstream, which is essentially a chemicals and refining business. Given that fees drive the midstream business, Chevron Corporation (NYSE:CVX) has a reliable source of revenue on its exposure regardless of prevailing economic conditions. Its downstream business also shields it from low oil prices.

While oil prices will always be a key determinant of the company’s performance, the midstream and downstream business units help offset the peaks and valleys in the energy sector due to oil price fluctuations. Owing to the diversified nature of the core business, Chevron Corporation (NYSE:CVX) has succeeded in generating free cash flow, consequently reducing its debt from $45 billion to about 25 billion. Likewise, it has returned shareholder value with its 4.34% dividend yield.

Here is what TCW Relative Value Large Cap Fund said about Chevron Corporation (NYSE:CVX) in its Q3 2024 investor letter:

“Chevron Corporation (NYSE:CVX), headquartered in San Ramon, CA, is an integrated energy company. At elimination, the stock had a $273 billion market capitalization and met all five valuation factors, including a robust 4.4% dividend yield. Chevron’s planned acquisition of Hess† would yield a strong restructuring catalyst through elimination of duplicate corporate costs and a new markets catalyst through Hess’ 30% interest in the Stabroek oilfield off Guyana; these blocks have a very low cost of supply and decades of reserves that would support strong free cash flow. While Chevron recently received Hart[1]Scott-Rodino (HSR) clearance to acquire the company, the closure timing has extended from Q4 2024 to possibly to Q2 2025 as Chevron is engaged in arbitration with peers ExxonMobil (XOM; 2.47%**) and Chinese state-owned CNOON over rights of first refusal (ROFR) for Hess’ interest in Stabroek. As Chevron’s expected arbitration resolution timeline has slipped, we believe that ExxonMobil and CNOOC’s ROFR case may have more merit than expected, thus putting the entire Hess acquisition at risk. Given an increasingly reasonable outcome that Chevron might abandon the Hess acquisition altogether, we eliminated the position in the stock.”