In this piece, we will take a look at the 8 best value stocks to invest in according to Warren Buffett.
Is the market too expensive? That’s the big question with major market indices at all-time highs even as the Federal Reserve cuts interest rates to try and prevent the economy from plunging into recession. Warren Buffett, the most revered investor on Wall Street, is sending alarm bells as he continues to trim stakes in some widely held stocks on valuations getting out of hand.
Buffett’s actions in the market in recent months have raised concerns about the overall market outlook as the economic growth starts showing signs of weakness. Growth in the labor market cooling off and growing at the slowest pace since 2021, with the manufacturing sector also slowing, has raised serious doubts about the economic outlook.
READ ALSO: 10 Best Performing Warren Buffett Stocks in 2024 and 14 Worst 52-Week High Stocks to Buy According to Short Sellers.
Consequently, the US Federal Reserve cut 50 basis points interest rate to support the struggling economy. Nevertheless, it is the fact that Buffett has yet to make a massive purchase or investment despite having close to $300 billion in cash reserves at his disposal, which continues to send jitters among the investment community.
Warren Buffett is known for his unwavering commitment to value investing, which is clearly shown through his investment holdings. When pitted against most of the top-tier hedge funds out there, the billionaire investor tends to purchase stocks and then holds on to them for years, if not decades, as part of his long-term holding strategy. Consequently, the best value stocks to invest in, according to Warren Buffett, have achieved incredible gains primarily through the appreciation of their share prices over time.
Since Buffett has always stuck to his value investing strategy that focuses on undervalued companies, suggestions that the market is too expensive have been quoted as one reason he’s gone entirely. There are also suggestions that the billionaire investor is waiting for the market to collapse from current highs before deploying the $300 billion at his disposal.
The Oracle of Omaha has already indicated in recent years that he does not see an abundance of value investment opportunities to pursue with the market at all-time highs. Nevertheless, Buffett’s portfolio still consists of stocks trading at some of the lowest price-to-earnings multiples that offer some of the best value investing opportunities.
Additionally, Buffett’s portfolio consists of companies showing tremendous upside potential in earnings and revenue growth. Consequently, according to Warren Buffett, the best value stocks to invest in are companies well poised to generate long-term value for shareholders.
While Buffett has been trimming stakes in some companies, it does not mean he no longer believes in their long-term prospects. Instead, the sell-off spree is part of the billionaire investor’s bid to lock in profits after one of the longest bull runs in recent history.
The sale also indicates how large some of his stakes in the company have become. Buffett had always advocated for locking in profits, having paid the price of not selling stakes in a giant beverage company when the stock stretched to 60 times earnings in the 1990s.
Even as the billionaire investor trims stakes, his portfolio remains well diversified in various sectors and poised to generate long-term value.
Our Methodology
We sifted through Berkshire Hathaway’s Q2 2024 13F filings and picked stocks that were trading at a forward P/E of under 15 and were expected to experience earnings growth this year. Finally, we ranked the stocks in descending order of their forward P/E ratios. We have also included Berkshire Hathaway’s stake and the number of hedge fund holders for each stock, as of Q2 2024.
At Insider Monkey, we are obsessed with 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 Best Value Stocks to Invest In According To Warren Buffett
8. Chubb Limited (NYSE:CB)
Expected Earnings Growth 2024: 8.90%
Latest P/E Ratio: 11.90
Warren Buffett’s Q2 2024 Stake: $6.89 Billion
Number of Hedge Fund Investors as of Q2 2024: 46
Chubb Limited (NYSE:CB) is a financial services company specializing in providing insurance and reinsurance products. It offers commercial property, casualty, workers’ compensation, package policies, risk management, financial lines, marine, and construction insurance products.
It is one of the best value stocks to invest in, according to Warren Buffett, given its consistent performance in the insurance sector and ability to outperform the overall market by an average of 200 basis points annually over the past two decades.
Chubb Limited (NYSE:CB)’s impressive performance over the years is credited to its methodical strategy in underwriting and solid capital allocation. The firm has shown a consistent yearly increase in book value per share, including dividends, of around 10%.
The stellar performance stands out, especially considering the obstacles encountered during two significant events, the COVID-19 pandemic and the global financial crisis, during weak insurance markets and years characterized by expensive disasters.
Similarly, Chubb Limited (NYSE:CB) has been actively buying back its shares, leading to a decrease in outstanding shares over the years. Moreover, money has been returned to the company’s owners through an increasing flow of quarterly cash dividends.
Operating income has increased by an annualized rate of 9.8% from 2016 to 2023. This revenue growth has been even more rapid, with operating income per share increasing at an impressive 11.7% compound annual growth rate, thanks to the share buybacks.
With its earnings expected to grow by 8.90% in the current year while still trading at a discount with a price-to-earnings multiple of 11.90, Chubb Limited (NYSE:CB) remains one of the best value stocks to invest in, according to Warren Buffett. Its 1.25% dividend yield should continue to excite income-focused investors.
Out of the 912 hedge funds tracked by Insider Monkey, 46 reported owning stock in Chubb Limited (NYSE:CB) as of Q2 2024. Berkshire Hathaway was among the leading hedge fund investors in the company, with a stake worth $6.90 billion.
7. Lennar Corporation (NYSE:LEN)
Expected Earnings Growth 2024: 5.10%
Latest P/E Ratio: 11.16
Warren Buffett’s Q2 2024 Stake: $21.27 Million
Number of Hedge Fund Investors as of Q2 2024: 60
Lennar Corporation (NYSE:LEN) is one of Buffett’s top consumer cyclical investment players specializing in the homebuilding business. Its operation revolves around constructing and selling single-family attached and detached homes.
Having built over 1 million homes since 1954, Lennar Corporation (NYSE:LEN) has enjoyed tremendous earnings and revenue growth. For instance, its net income has increased by an average of 16.75% and revenue by 10.66% over the past five years. Its competitive edge stems from building affordable houses in strategic markets to cater to existing housing shortages.
Additionally, Lennar Corporation (NYSE:LEN) stands out as one of the best value stocks to invest in, according to Warren Buffett, because of its resilience against the external environment. Its strong balance sheet also makes it one of the best home builders.
The company delivered solid second-quarter financial results, increasing net earnings by $1.2 billion. The company recorded a 5% increase in new orders for homes to 20,587, affirming how it navigates the challenging environment amid high interest rates. The better-than-expected results were attributed to several factors, including a 9% year-over-year increase in homebuilding (HB) revenues.
While trading at a price-to-earnings multiple of 11.16, Lennar Corporation (NYSE:LEN) looks undervalued while showing tremendous potential for generating long-term value. For starters, its earnings are projected to increase by 5.10% in 2024 while rewarding investors with a 1.08% dividend yield.
By the end of this year’s second quarter, 60 out of the 912 hedge funds surveyed by Insider Monkey had bought a stake in Lennar Corporation (NYSE:LEN).