In this article, we will take a look at some of the best value stocks according to Warren Buffett.
Many experienced economists and investors today take inspiration from Warren Buffett’s strategies. His focus on value investing played a key role in building his fortune. This investment philosophy involves purchasing undervalued stocks or businesses when market sentiment drives prices lower and holding them for the long term. Buffett has made some of his most successful investments by capitalizing on opportunities when others were selling out of fear.
Value investing remains one of the most widely used investment strategies, having generated substantial returns over time. A report from Bank of America highlighted its long-term success, showing that since 1926 through 2023, value stocks have delivered a total return of 1,344,600%, significantly outperforming growth stocks, which have returned 626,000% over the same period.
Also read: 8 Unstoppable Dividend Stocks to Invest in
Lowell Miller’s book, Single Best Investment, highlighted the insights of Fama and French on value investing, referencing their published works in the Journal of Finance. Here are some remarks by Nobel laureates:
“Firms that the market judges to have poor prospects, signaled by low stock prices and low price/book ratios, have higher expected stock returns . . . than firms with strong prospects.”
The book highlighted that when a growth stock does not live up to investors’ high expectations, they come to realize that its price was inflated, often resulting in a sharp decline. In contrast, value stocks, which generally have lower expectations, can exceed predictions, leading to a positive reassessment of their price. However, the book also stresses the importance of diversification, as relying too heavily on a single investment can be risky. Historically, maintaining a diversified portfolio has been a prudent approach for investors.
According to a report by BlackRock, value stocks can serve as a buffer in a shifting market environment. A recent example was the broad market downturn in 2022, where steep declines in growth stocks were somewhat balanced by smaller losses in value stocks. By definition, value stocks trade at lower prices compared to growth stocks, though the extent of this discount has varied over time.
An analysis of the broader market’s growth and value stocks suggests that valuations would need to climb by more than 40% to bring value stocks back to their long-term median levels. This indicates significant upside potential if value stocks begin to recover, particularly as high valuations in growth stocks may encourage investors to shift toward value as the market expands its focus beyond mega-cap companies. While past performance does not guarantee future results, history offers some perspective. The last time the valuation gap between the Russell Growth and Russell Value indexes was as wide as it is today—back in December 2000—value stocks went on to outperform growth stocks over the following one-, three-, and five-year periods, the BlackRock report further highlighted.
In addition to focusing on value stocks, Buffett allocates a significant portion of his investments to dividend-paying companies. By the end of the third quarter of 2024, the majority of companies in his portfolio not only distributed dividends to shareholders but also had a consistent history of maintaining and growing those payouts. In this article, we will take a look at some of the best value dividend stocks according to Warren Buffett.
Our Methodology:
For this article, we analyzed Berkshire Hathaway’s 13F portfolio as of the third quarter of 2024 and picked dividend stocks. From that list, we selected stocks that have forward price-to-earnings (P/E) ratios below 21 as of January 28. A low P/E ratio indicates that a stock or an investment is relatively undervalued in the market. The stocks are ranked in ascending order of their forward P/E ratios as of January 28. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
8. American Express Company (NYSE:AXP)
Forward P/E Ratio: 20.83
American Express Company (NYSE:AXP) is an American bank holding company that mainly specializes in payment cards. The company stands out in the financial services industry as it not only issues credit cards and offers credit to borrowers but also operates a payment network and a banking division that provides savings accounts and loans. This diversification creates multiple revenue streams and offers various avenues for growth. In the past 12 months, the stock has surged by nearly 58%, significantly outperforming the market.
In the fourth quarter of 2024, American Express Company (NYSE:AXP) reported revenue of over $17 billion, which showed a 9% growth from the same period last year. The company’s net income for the quarter came in at over $2.1 billion, which grew by 12% on a YoY basis. It achieved record highs in annual Card Member spending, net card fee revenues, and new card acquisitions, adding 13 million new cards over the year. In addition, the company continued expanding its global network by onboarding millions of new merchant locations. By the end of the year, it saw increased momentum, with billings growth accelerating to 8% in the fourth quarter, supported by stronger consumer and commercial spending during the holiday season.
On January 24, American Express Company (NYSE:AXP) declared a 17.1% hike in its quarterly dividend to $0.82 per share. This marked the company’s sixth dividend hike in the past three years. The stock has a dividend yield of 0.88%, as of January 28. With a forward P/E ratio of 20.83, AXP is one of the best value stocks according to Warren Buffett.
At the end of Q3 2024, 62 hedge funds tracked by Insider Monkey held stakes in American Express Company (NYSE:AXP), compared with 68 in the previous quarter. The consolidated value of these stakes is over $45 billion. In addition to Warren Buffett, Ken Fisher’s Fisher Asset Management was one of the company’s leading stakeholders in Q3.
7. Occidental Petroleum Corporation (NYSE:OXY)
Forward P/E Ratio: 13.68
Occidental Petroleum Corporation (NYSE:OXY) is a Texas-based company that is engaged in the exploration of hydrocarbons and chemical manufacturing. The company has distinguished itself as a forward-looking energy industry leader through significant carbon capture technology investments, aligning with global energy transition objectives. Although an immediate rebound in oil prices may not be expected, the company’s strong cash flow, prudent management, and strategic approach position it well for future growth. For long-term investors, OXY presents an appealing balance of risk and reward at current valuations, offering a promising opportunity despite market fluctuations.
Occidental Petroleum Corporation (NYSE:OXY)’s stock declined by over 17% in 2024, despite Warren Buffett’s Berkshire Hathaway steadily increasing its stake in the company throughout the year. Investor sentiment remained cautious as Occidental’s debt levels grew while crude oil prices dropped. The stock faced its sharpest decline in the second half of 2024, coinciding with the company’s $12 billion acquisition of CrownRock in August. This deal included $1.2 billion of CrownRock’s existing debt, with Occidental financing nearly $9 billion through new debt.
The acquisition significantly increased Occidental Petroleum Corporation (NYSE:OXY)’s debt burden, and the drop in crude oil prices during the latter part of the year raised concerns among investors. Many anticipated that falling oil prices would negatively impact the company’s earnings and cash flow, while its rising interest expenses added to their worries.
That said, Occidental Petroleum Corporation (NYSE:OXY) has been grabbing investor attention because of its strong dividend policy. The company has never missed a dividend in the past 45 years. Currently, it pays a quarterly dividend of $0.22 per share and has a dividend yield of 1.80%, as of January 28.
The number of hedge funds tracked by Insider Monkey owning stakes in Occidental Petroleum Corporation (NYSE:OXY) jumped to 71 in Q3 2024, from 62 in the previous quarter. These stakes are collectively valued at over $15.3 billion.
6. The Kroger Co. (NYSE:KR)
Forward P/E Ratio: 12.89
The Kroger Co. (NYSE:KR) is an American retail company that operates supermarkets and multi-department stores throughout the US. In recent months, the company has prioritized growing its private label products, improving its digital shopping experience, and exploring potential strategic mergers. Its success depends on staying competitive with pricing, strengthening customer loyalty, and broadening its online presence. In the past 12 months, the stock has surged by nearly 30%.
The Kroger Co. (NYSE:KR) reported strong sales results for the third quarter of 2024, driven by robust performance in its pharmacy and digital segments, showcasing the strength and versatility of its business model. During the quarter, the company expanded its customer base by offering exceptional value through competitive pricing, tailored promotions, and high-quality private-label products, all within a seamless shopping experience. The company’s revenue for the quarter came in at $33.63 billion, which fell by 0.95% from the same period last year. With a forward P/E ratio of 12.89, KR is one of the best value stocks according to Warren Buffett.
On October 4, 2024, The Kroger Co. (NYSE:KR) finalized the sale of its specialty pharmacy business for $464 million. This transaction led to a $340 million reduction in third-quarter sales compared to the same period the previous year, with annual sales expected to decrease by approximately $3 billion moving forward. Since the specialty pharmacy segment had low profit margins, the sale improved the company’s gross margin while increasing operating, general, and administrative expenses as a percentage of sales.
The Kroger Co. (NYSE:KR) holds a strong dividend history. The company has been growing its payouts for 18 consecutive years and currently pays a quarterly dividend of $0.32 per share. The stock has a dividend yield of 2.12%, as of January 28.
The Kroger Co. (NYSE:KR) was included in 39 hedge fund portfolios at the end of Q3 2024, down from 46 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds are collectively worth over $4.3 billion. Harris Associates was one of the company’s leading stakeholders in Q3.
5. Bank of America Corporation (NYSE:BAC)
Forward P/E Ratio: 12.72
Bank of America Corporation (NYSE:BAC) is an American financial services company, based in North Carolina. The company offers a wide range of related services and products to its consumers. As of Q3 2024, the company represents about 12% of Berkshire Hathaway’s investment portfolio, making it the conglomerate’s third-largest holding. With a forward P/E ratio of 12.72, BAC is one of the best value stocks to buy according to Warren Buffett.
Bank of America Corporation (NYSE:BAC) benefits from significant competitive strengths that solidify its standing in the industry, shielding it from both traditional rivals and fintech challengers. Its expansive distribution network, which integrates a strong digital platform with an extensive branch system, helps the bank grow its low-cost deposit base and attract new customers, creating more revenue opportunities. In addition, its large scale supports efficient cost management, ensuring steady profitability. The bank’s reputable brand further enhances its appeal to both current and prospective customers.
In the fourth quarter of 2024, Bank of America Corporation (NYSE:BAC) reported revenue of $25.3 billion, up from $22 billion in the same period last year. The company’s net income for the quarter came in at $6.7 billion, growing from $3.1 billion in the prior-year period. It added 213,000 new consumer checking accounts, marking six consecutive years of quarterly growth. The company also remained committed to its shareholder obligation, returning $2 billion to investors through dividends.
Bank of America Corporation (NYSE:BAC) is a strong dividend payer as the company has maintained its dividend distribution for 27 consecutive years. The company currently offers a quarterly dividend of $0.26 per share and has a dividend yield of 2.22%, as of January 28.
Insider Monkey’s database of Q3 2024 indicated that 98 hedge funds owned stakes in Bank of America Corporation (NYSE:BAC), up from 92 in the preceding quarter. These stakes are valued at more than $40.6 billion in total.
4. Chevron Corporation (NYSE:CVX)
Forward P/E Ratio: 12.71
Chevron Corporation (NYSE:CVX) ranks fourth on our list of the best value stocks to buy according to Warren Buffett. The American multinational energy company manufactures and sells a range of high-quality refined products. The company is in a strong cash position, and its CEO recently outlined plans to boost free cash flow by $6 billion to $8 billion next year, alongside cost reductions amounting to several billion dollars. These improvements are expected to stem from new or expanded oil production projects in Kazakhstan, US shale areas, and the offshore Gulf of Mexico. In the most recent quarter, the company reported an operating cash flow of $9.7 billion, up from $6.3 billion during the same period last year. Moreover, it returned $7.7 billion to shareholders via dividends and share buybacks.
Chevron Corporation (NYSE:CVX) intends to stay profitable even with moderate oil prices, allowing it to fund capital projects and raise dividends. To achieve this, it plans to realize additional structural cost savings of $2 billion to $3 billion by 2026 while maintaining a focus on a low-cost, high-margin production portfolio. The stock has delivered a nearly 5% return to shareholders in the past year.
Chevron Corporation (NYSE:CVX) is one of the top choices of income investors as the company has raised its payouts for 37 years straight, even during tough industry downturns. This makes it a reliable option for investors new to the sector, seeking stable and foundational investments. Unlike many exploration and production (E&P) companies, which come with higher risks, it offers a steadier investment with consistent returns. The company’s quarterly dividend comes in at $1.63 per share and has a dividend yield of 4.17%, as of January 28.
At the end of Q3 2023, 63 hedge funds tracked by Insider Monkey owned stakes in Chevron Corporation (NYSE:CVX), compared with 64 in the previous quarter. These stakes have a consolidated value of over $21 billion.
3. Chubb Limited (NYSE:CB)
Forward P/E Ratio: 11.38
Chubb Limited (NYSE:CB) is an American insurance company that offers a wide range of insurance products, including property and casualty, life insurance, and reinsurance, with operations across 54 countries. Although more than half of its premiums come from the United States, the company’s global presence helps protect it from regional disasters, contributing to its resilience.
Since CEO Evan Greenberg took charge in 2004, Chubb Limited (NYSE:CB) has built a strong and stable leadership team. Greenberg’s disciplined approach to underwriting has been key to the company’s success, ensuring that premiums are set accurately to manage risk while keeping customers satisfied. This strategy is reflected in the company’s combined ratio, a key insurance metric, which has consistently stayed under 100%. A ratio below 100% indicates that Chubb earns more from underwriting than it pays out in claims, demonstrating the effectiveness of its risk models. Maintaining this ratio for over 20 years highlights the company’s competitive advantage and operational excellence.
Chubb Limited (NYSE:CB) distinguishes itself by catering to high-income clients, particularly in the homeowner insurance market. Wealthier individuals tend to maintain their spending and continue paying premiums even during mild economic downturns, providing the company with greater stability. In the third quarter of 2024, the company reported a net income of $2.32 billion, reflecting a 13.8% increase compared to the same period the previous year. For Q3, the company posted an operating cash flow of $4.55 billion, with a trailing twelve-month operating cash flow of $14.8 billion. This strong cash position has enabled the company to increase its dividend payouts for 31 consecutive years. The stock has a forward P/E ratio of 11.38, which makes it one of the best value stocks according to Warren Buffett. The company currently pays a quarterly dividend of $0.91 per share and has a dividend yield of 1.34%, as of January 28.
Chubb Limited (NYSE:CB) was included in 51 hedge fund portfolios at the end of Q3 2024, up from 46 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these funds are worth more than $10 billion in total.
2. Citigroup Inc. (NYSE:C)
Forward P/E Ratio: 10.81
Citigroup Inc. (NYSE:C) is a New York-based multinational investment bank and financial services company with operations in nearly 180 countries and jurisdictions. In FY24, the company reported a nearly 40% increase in net income, reaching $12.7 billion, surpassing its full-year revenue target. This included record performances in Services, Wealth, and US Personal Banking. Expenses were kept within the company’s guidance, and it successfully improved its efficiency ratio while completing a major reorganization of the firm. Its revenue for the year came in at $81.1 billion, which showed a 3% growth from the previous year.
Citigroup Inc. (NYSE:C) is undergoing a multi-year restructuring, selling off complex business units and narrowing its focus to areas where it can at least cover its cost of capital. Over the past three years, the company has made considerable progress in improving its risk management, compliance, and accountability. In the past 12 months, the stock has surged by nearly 48%.
In addition to its operational efficiency, Citigroup Inc. (NYSE:C) is a strong dividend payer and has remained committed to returning value to shareholders. In 2024, the company paid $6.7 billion to investors through dividends and share repurchases. The company’s dividends appear safe because of its payout ratio of 58%. Moreover, it has been paying regular dividends to shareholders for the past 34 years. The company offers a quarterly dividend of $0.56 per share and has a dividend yield of 2.80%, as of January 28.
According to Insider Monkey’s database of Q3 2024, 88 hedge funds, up from 85 in the previous quarter, held stakes in Citigroup Inc. (NYSE:C). The consolidated value of these stakes is over $10.8 billion. With nearly 17 million shares, Greenhaven Associates was one of the company’s leading stakeholders in Q3.
1. The Kraft Heinz Company (NASDAQ:KHC)
Forward P/E Ratio: 9.71
The Kraft Heinz Company (NASDAQ:KHC) is an American multinational food company that specializes in a wide range of snacks and beverages. In the third quarter of 2024, the company delivered mixed results, falling short of analysts’ expectations. Revenue declined by 2.85% year-over-year to $6.38 billion. However, the company saw a modest improvement in its gross profit margin, which rose by 20 basis points to 34.2%. It is prioritizing investments in marketing, research and development, and technology to enhance consumer-driven solutions and support long-term revenue growth. These efforts are backed by its ability to optimize operations and maintain strong cash flow. In addition, the company continues to focus on expanding both its established and emerging food and beverage brands globally.
The Kraft Heinz Company (NASDAQ:KHC) was created through the merger of Kraft and Heinz, aiming to drive profitability by cutting costs. However, the integration did not unfold as expected, resulting in a leadership transition. The company has since shifted its focus to a core group of stronger-performing brands. Despite previous setbacks, Kraft Heinz has been making progress, particularly in strengthening its financial position. Since reaching its highest debt levels in 2020, the company has made substantial progress in reducing leverage, demonstrating its ability to manage current challenges and realign its business for long-term growth.
Despite ongoing challenges, income-focused investors may find reassurance in The Kraft Heinz Company (NASDAQ:KHC)’s solid cash position. In the latest quarter, the company demonstrated strong cash generation, with operating cash flow for the year rising 6.7% to $2.8 billion compared to the previous year. Free cash flow also saw a 9.7% increase, reaching $2 billion. Moreover, the company distributed $1.5 billion in dividends to shareholders over the first nine months of the year. It currently pays a quarterly dividend of $0.40 per share and has a dividend yield of 5.41%, as of January 28.
Overall The Kraft Heinz Company (NASDAQ:KHC) ranks first on our list of the best value stocks according to Warren Buffett. While we acknowledge the potential for KHC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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