15 Cheapest Stocks Warren Buffett Owns

Published on August 19, 2023 at 10:04 am by Ramish Cheema in Hedge Funds, News

In this piece, we will take a look at the 15 cheapest stocks that Warren Buffett owns. If you want to skip out on what a cheap stock is in financial terms and about Mr. Buffett’s investment philosophy in general, then take a look at 5 Cheapest Stocks Warren Buffett Owns.

For those untrained in all things finance and the stock market, the success of Warren Buffett can appear daunting and unimaginable. After all, being worth hundreds of billions of dollars without setting up a successful manufacturing or technology business is quite rare, a fact that is clear when we look at the wealth of hedge fund bosses.

If we were to use two words to describe his investment approach, it would be Value and Dividends. Mr. Buffett is an old school player who is renowned for his patience and meticulousness when it comes to finding good stocks. This falls in line with the first word we’ve used above. Meticulousness in stock picking is when an investor carefully evaluates companies to determine whether their intrinsic value is greater than their market value. The most common approach to doing this is what is called a discounted cash flow analysis. This analysis uses a firm’s financial statements and projects its revenue, costs, and net income for years into the future. Then, these figures are used to determine its cash flows – which represent the money that is truly generated as value. These cash flows are discounted to their present value, and when divided with the shares outstanding, they provide an intrinsic value per share. If this value is below the current market share price, then the company is undervalued, and if it’s higher then the company is overvalued by the stock market.

However, Mr. Buffett is also known for not relying exclusively on DCF models for his investment decisions, perhaps because the model is quite unreliable as tiny changes can impact its output significantly. Rather, his investment approach has been in play for thousands of years, with the investor explaining in 2000:

Leaving aside tax factors, the formula we use for evaluating stocks and businesses is identical. Indeed, the formula for valuing all assets that are purchased for financial gain has been unchanged since it was first laid out by a very smart man in about 600 B.C. (though he wasn’t smart enough to know it was 600 B.C.).

The oracle was Aesop and his enduring, though somewhat incomplete, investment insight was “a bird in the hand is worth two in the bush.” To flesh out this principle, you must answer only three questions. How certain are you that there are indeed birds in the bush? When will they emerge and how many will there be? What is the risk-free interest rate (which we consider to be the yield on long-term U.S. bonds)? If you can answer these three questions, you will know the maximum value of the bush ¾ and the maximum number of the birds you now possess that should be offered for it. And, of course, don’t literally think birds. Think dollars.

Aesop’s investment axiom, thus expanded and converted into dollars, is immutable. It applies to outlays for farms, oil royalties, bonds, stocks, lottery tickets, and manufacturing plants. And neither the advent of the steam engine, the harnessing of electricity nor the creation of the automobile changed the formula one iota – nor will the Internet. Just insert the correct numbers, and you can rank the attractiveness of all possible uses of capital throughout the universe.

An oracle, quoting an oracle. What else could you ask for really? Another crucial tenet of Mr. Buffett’s investment philosophy is the margin of safety. This is a rather tricky but simple concept to understand once you get the hang of it. A margin of safety works together with the intrinsic value of a stock to protect the investor against any errors in judgment when calculating the intrinsic value. So, if a firm’s shares are trading at $100, but its calculated intrinsic value is $50 then the investment decision will be influenced by the margin. A $50 share price estimate can be a buying point if the margin of safety is 0%. However, if this margin is set at 50%, then the buying point shifts lower to $25, and this becomes the new entry point to protect the investor against significant losses.

The second word that we’ve used for Mr. Buffett’s investment philosophy is Dividends. Rather than some investors who might spend their dividends, he continues to reinvest them into the stock to increase the value of the investment over time without actually generating additional capital. We’ve covered some of his biggest investment plays in our coverage of Warren Buffett’s 12 Longest Held Stocks so you can check it out if you want to learn more.

When buying groceries, you might consider eggs to be cheap if they are available below $3 per dozen for instance. After all, it’s difficult (but not impossible) to calculate the price to earnings ratio for eggs. However, when buying stocks, the market share price is often divided by either annual earnings per share, the latest twelve month period earnings per share, or the projected earnings per share. These are then compared to industry averages to determine if a stock is cheap (if the P/E is lower than the industry readings) or expensive (vice versa). For more information on these three kinds of ratios, check out 10 Best Inexpensive Stocks To Buy Right Now.

So what are Warren Buffett’s cheapest investments? We’ve taken a look and the toppers are Ally Financial Inc. (NYSE:ALLY), Citigroup Inc. (NYSE:C), and General Motors Company (NYSE:GM).

Our Methodology

To make our list of the cheapest stocks that Warren Buffett owns, we picked 15 stocks from Berkshire’s Q2 portfolio with the lowest P/E ratios. The list is ranked in descending order of P/E ratios.

Cheapest Stocks Warren Buffett Owns

15. Charter Communications, Inc. (NASDAQ:CHTR)

Berkshire Hathaway’s Latest Investment: $1.4 billion

TTM P/E Ratio: 13.62

Charter Communications, Inc. (NASDAQ:CHTR) is a cable and communications company. Its second quarter of 2023 earnings EPS beat was the first in the last four quarters and the average share price target for the company is $479.57.

As of June 2023, 67 of the 910 hedge funds part of Insider Monkey’s research had bought the firm’s shares. Charter Communications, Inc. (NASDAQ:CHTR)’s largest investor in our database is Natixis Global Asset Management’s Harris Associates since it owns 5.3 million shares that are worth $1.9 billion.

Charter Communications, Inc. (NASDAQ:CHTR) joins Citigroup Inc. (NYSE:C), Ally Financial Inc. (NYSE:ALLY), and General Motors Company (NYSE:GM) in our list of Warren Buffett’s cheapest stock picks.

14. NVR, Inc. (NYSE:NVR)

Berkshire Hathaway’s Latest Investment: $70.5 million

TTM P/E Ratio: 12.52

NVR, Inc. (NYSE:NVR) is a home building company. It created quite a stir in the media after the latest Berkshire SEC filings were posted since it is one of three such companies that Mr. Buffett had initiated new positions in during Q2 2023. The stock is rated Buy on average.

During the second quarter of 2023, 41 of the 910 hedge funds surveyed by Insider Monkey had invested in NVR, Inc. (NYSE:NVR). Out of these, the firm’s largest shareholder is Ric Dillon’s Diamond Hill Capital with a $615 million investment.

13. HP Inc. (NYSE:HPQ)

Berkshire Hathaway’s Latest Investment: $3.7 billion

TTM P/E Ratio: 11.63

HP Inc. (NYSE:HPQ) is one of the oldest computing companies in America and one that is thought to have been the start of Silicon Valley. However, the firm isn’t finding much love from analysts these days, as its share rating is nearly a Hold on average.

Warren Buffett’s Berkshire Hathaway owned 120 million HP Inc. (NYSE:HPQ) shares for a $3.7 billion stake as of Q2 2023. Including his firm, 46 of the 910 hedge funds part of Insider Monkey’s database had also bought the company’s shares during the same time period.

12. Louisiana-Pacific Corporation (NYSE:LPX)

Berkshire Hathaway’s Latest Investment: $528 million

TTM P/E Ratio: 8.8

Louisiana-Pacific Corporation (NYSE:LPX) is an industrial products company that serves the needs of the construction industry. It missed analyst Q2 2023 EPS estimates, and since then, the stock has dropped from $78 to $59.

By the end of this year’s second quarter, 37 of the 910 hedge funds part of Insider Monkey’s research had invested in the company. Louisiana-Pacific Corporation (NYSE:LPX)’s largest investor in our database is Berkshire Hathaway since it owns seven million shares that are worth $528 million.

11. Chevron Corporation (NYSE:CVX)

Berkshire Hathaway’s Latest Investment: $19.3 billion

TTM P/E Ratio: 8.69

Chevron Corporation (NYSE:CVX) is one of the biggest oil companies in the world. While it has struggled on the earnings front this year due to normalization in the oil supply chain, Warren Buffett is still its largest shareholder through Berkshire’s stake of $19.3 billion.

Along with Mr. Buffett’s firm, 73 of the 910 hedge fund portfolios surveyed by Insider Monkey for 2023’s June quarter had also held stakes in the oil firm. Ken Fisher’s Fisher Asset Management has a sizeable investment worth $1.1 billion in Chevron Corporation (NYSE:CVX).

10. Celanese Corporation (NYSE:CE)

Berkshire Hathaway’s Latest Investment: $630 million

TTM P/E Ratio: 8.62

Celanese Corporation (NYSE:CE) is an industrial products supplier which sells acids, chemicals, adhesives, and other products to a variety of different industries. The firm missed its Q2 2023 analyst EPS estimates, and the stock is rated Buy on average with the rating lingering towards Hold.

During June 2023, 30 of the 910 hedge funds part of Insider Monkey’s research had bought Celanese Corporation (NYSE:CE)’s shares. Out of these, the second largest stakeholder is Natixis Global Asset Management’s Harris Associates with a $207 million stake.

9. Bank of America Corporation (NYSE:BAC)

Berkshire Hathaway’s Latest Investment: $29 billion

TTM P/E Ratio: 8.36

Bank of America Corporation (NYSE:BAC) is one of the largest banks in America and in the world. As part of a trend that has been exhibited by diversified banks this year, the bank also beat analyst EPS estimates for its second quarter earnings.

A stake of $29 billion guarantees that Berkshire Hathaway is the largest Bank of America Corporation (NYSE:BAC) investor in our database. Overall, 90 of the 910 hedge funds tracked by Insider Monkey had held a stake in the bank as of Q2 2023.

8. D.R. Horton, Inc. (NYSE:DHI)

Berkshire Hathaway’s Latest Investment: $726 million

TTM P/E Ratio: 8.35

D.R. Horton, Inc. (NYSE:DHI) is a fresh Warren Buffett investment that he scooped up during the second quarter. It is a home building company whose shares have appreciated by 29% year to date with momentum only increasing after it beat analyst EPS estimates for the second quarter.

Including Berkshire Hathaway, 54 of the 910 hedge funds part of Insider Monkey’s research for this year’s second quarter had bought and invested in D.R. Horton, Inc. (NYSE:DHI)’s stock.

7. Capital One Financial Corporation (NYSE:COF)

Berkshire Hathaway’s Latest Investment: $1.3 billion

TTM P/E Ratio: 8

Capital One Financial Corporation (NYSE:COF) is a global bank that provides accounts, deposit certificates, loans, and other banking products. Its second quarter EPS beat was the first time in the four latest quarters that the firm had managed to do so, as a high rate environment affects banks significantly.

Insider Monkey dug through 910 hedge funds for their June quarter of 2023 shareholdings and discovered that 51 had held a stake in the bank. Out of these, Capital One Financial Corporation (NYSE:COF)’s largest shareholder is Natixis Global Asset Management’s Harris Associates since it owns 19 million shares that are worth $2 billion.

6. Lennar Corporation (NYSE:LEN)

Berkshire Hathaway’s Latest Investment: $17.2 million

TTM P/E Ratio: 8

Lennar Corporation (NYSE:LEN) is the third home building investment that Warren Buffett made during the second quarter. Along with D. R. Horton, the $17.2 million stake indicates that the Oracle of Omaha might be quite bullish about the sector that has struggled in today’s high interest rate era.

After scouring through 910 hedge funds for their second quarter of 2023 investments, Insider Monkey discovered that 66 had owned Lennar Corporation (NYSE:LEN)’s shares. The company’s biggest investor among these is Edgar Wachenheim’s Greenhaven Associates through a stake worth $1.1 billion.

Ally Financial Inc. (NYSE:ALLY), Lennar Corporation (NYSE:LEN), Citigroup Inc. (NYSE:C), and General Motors Company (NYSE:GM) are some cheap stocks that Warren Buffett has piled into.

Click to continue reading and see 5 Cheapest Stocks Warren Buffett Owns: Top 5 Stocks.

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Published on October 30, 2024 at by Inan Dogan, PhD

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Published on November 16, 2024 at by Insider Monkey Staff

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