Below we present the list of 5 Best Value Stocks to Buy According to Warren Buffett. For our methodology and a more comprehensive list please see 10 Best Value Stocks to Buy According to Warren Buffett. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
5. Moody’s Corporation (NYSE:MCO)
Moody’s Corporation (NYSE:MCO) is one of Warren Buffett’s oldest holdings, dating back more than two decades. Buffett’s holding company Berkshire Hathaway owned 24.67 million shares of MCO on September 30, giving it a greater than 13% ownership stake in the company. MCO has also been one of Buffett’s top performing stocks over the last decade, with annualized returns of about 28%.
Buffett has called the credit ratings agency a “fantastic business” in the past, pointing out the powerful, and non-negotiable, position it holds in the market. Buffett loves stocks that have wide moats, and Moody’s has as close to an unassailable moat as you’ll find. It’s also been an earnings machine and continues to grow its operating margins, reaching 47.3% on that score in the third quarter, a 3-percentage point climb year-over-year. MCO shares trade at 29x earnings, nicely below their five-year average of 35x.
4. The Kraft Heinz Company (NASDAQ:KHC)
Hedge funds have soured on The Kraft Heinz Company (NASDAQ:KHC) over the past five years, with about 35% of the stock’s former shareholders having moved on to other investment opportunities. Buffett is not one of them, having held on to every single one of the 325,634,818 KHC shares he acquired in 2015 as part of the private equity-backed mega merger between Kraft and Heinz facilitated by Berkshire and 3G Capital.
That’s not to say Buffett is thrilled with the investment, which would be a tough sell given that KHC shares have cratered by 55% since the merger. He’s admitted that they overpaid for Kraft and also that he would’ve sold some of his shares by this point if his holding had been smaller. Nonetheless, Buffett believes the company is a “great business” and the price looks reasonable at just 0.85x book value.
3. American Express Company (NYSE:AXP)
Buffett and American Express Company (NYSE:AXP) go back a long ways to say the least, all the way to 1964, when Buffett first invested in the credit card and financial services company in the midst of the Salad Oil Scandal (yes, that’s a real thing), a move that perfectly encapsulates Buffett’s motto to be “greedy when others are fearful”.
Berkshire owned over 151 million AXP shares at the end of September, giving it a nearly 19% ownership position in the company. Buffett emphasized the importance of safeguarding the AXP brand during discussions with CEO Stephen Squeri earlier this year in regards to the coronavirus pandemic, which prompted the company to adjust its member rewards and prioritize its customer service. AXP’s earnings have been cut in half this year, nearly doubling its P/E to 28x, but shares still trade at a solid 3.29x sales, only slightly above their five-year average.
2. The Coca-Cola Company (NYSE:KO)
Buffett is not only an ardent investor in The Coca-Cola Company (NYSE:KO), but also a devoted guzzler of its sodas, telling Fortune in 2015 that Cola-Cola accounts for about 25% of his daily caloric intake. Berkshire has owned Coca-Cola shares for over three decades and boasted ownership of an even 400 million of them as of September 30. That number isn’t likely to decline any time soon, as Buffett has been saying for years that he will never sell a single share.
Even as soda sales are generally slipping in developed markets and KO’s revenue slid by over 25% between 2015 and 2018, Coca-Cola has become a more profitable company than ever, with net margins hitting 24% in 2019 and has one of the most valuable brands in the world. Return on equity was just shy of 50% last year and Coke’s 27x P/E is the lowest it’s been in four years.
1. Bank of America Corporation (NYSE:BAC)
Topping the list is another one of Buffett’s favorite bank stocks, Bank of America Corporation (NYSE:BAC), which Berkshire owned 1.01 billion shares of on September 30. And while Buffett has sold off some of his stakes in other banks this year, he added over 85 million BAC shares to Berkshire’s 13F portfolio in Q3.
Buffett, who has been fairly conservative himself this year with his capital allocation, maintaining a large cash position throughout the year, likely appreciates BAC’s own conservatism. The bank is well above its CET1 ratio (a measure of its capital position in relation to the riskiness of its assets), far more so than the other major investment banks. Bank of America shares are quite a bit cheaper than they were last year, trading at just above 1x book value and 2.95x sales, and Buffett got them at an even cheaper rate in Q3, so it’s not surprising to see him pour some of his massive cash pile into further building his stake in BAC, his top value stock pick.
If you’re looking to add some consistent performers to your portfolio that some investors refuse to touch (their loss), don’t miss the Top 10 Sin Stocks to Buy Now.
Disclosure: None.
