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).
6. The Kraft Heinz Company (NASDAQ:KHC)
Expected Earnings Growth 2024: 9%
Latest P/E Ratio: 10.9
Warren Buffett’s Q2 2024 Stake: $10.49 Billion
Number of Hedge Fund Investors as of Q2 2024: 43
Kraft Heinz Co (NASDAQ:KHC) is a consumer defensive play by Warren Buffett that manufactures and markets food and beverage products. Its product line includes cheese and dairy products, meals, meats, refreshment beverages, coffee, and other grocery products.
Its competitive edge as one of the best value stocks to invest in, according to Warren Buffett, stems from implementing solid pricing strategies that have allowed it to strengthen its performance amid the high interest rate environment and inflationary pressures.
The firm effectively maintained its second-quarter 2024 adjusted gross profit at $2,296 million, an increase from $2,239 million in the previous year’s same period. It enhanced its quarterly adjusted gross margin by 210 basis points (bps), reaching 35.5%.
This notable achievement demonstrates the effectiveness of pricing strategies designed to counteract the increase in raw material costs. Kraft Heinz Co (NASDAQ:KHC)’s adjusted operating income rose by 2% to $1,380 million in the second quarter, underscoring the advantages of lower costs related to commodities and logistics.
Kraft Heinz Co (NASDAQ:KHC) keeps outperforming in its three main areas of food service, Emerging Markets, and U.S. Retail Expansion platforms, even with obstacles in the consumer market. KHC is diligently working to change its business model to realize its complete potential and increase its value for its shareholders.
The outperformance is one of the reasons the company’s earnings are projected to increase by 12.50% in the current quarter and 9% for the entire year. Amid sales and earnings growth, Kraft Heinz Co (NASDAQ:KHC) returns value to shareholders with a dividend yield of 4.61%—additionally, the stock trades at a discount with a price-to-earnings multiple of 10.9.
By the end of Q2 2024, 43 hedge funds listed in Insider Monkey’s database had invested in Kraft Heinz Co (NASDAQ:KHC). Warren Buffett’s Berkshire Hathaway is the company’s leading shareholder, with 325.63 million shares.
5. Bank of America Corporation (NYSE:BAC)
Expected Earnings Growth 2024: 6.20%
Latest P/E Ratio: 10.9
Warren Buffett’s Q2 2024 Stake: $41.10 Billion
Number of Hedge Fund Investors as of Q2 2024: 92
Bank of America Corporation (NYSE:BAC) is one of the best value stocks to invest in, according to Warren Buffett, owing to its status as one of the biggest banks in the US. While Buffett has been unloading stakes in the financial conglomerate, it does not mean its long-term prospects are doomed.
Bank of America Corporation (NYSE:BAC) is a favorite among hedge funds, with 92 funds holding stakes totaling over $48.1 billion in Q2 2024. Warren Buffett, a long-time admirer of banking stocks, particularly BAC, has maintained Berkshire Hathaway as one of the top shareholders with a $41.10 billion position.
The steepening of the yield curve is one factor that should work for Bank of America Corporation (NYSE:BAC) even as interest rates drop. After approximately two years, there is no longer an inverted yield curve, meaning that short-term Treasury bills now offer higher yields than their longer-term counterparts. Although it’s commonly believed that banks perform more efficiently in an environment with higher interest rates, this isn’t always the case.
Banks also require a steep yield curve because they typically borrow short-term and lend long-term. A steeper yield curve will lead to increased net interest income (NII), a primary source of income for Bank of America.
With a huge deposit base of almost $2 trillion, Bank of America Corporation (NYSE:BAC) revenues have increased by 11% over the past ten years. On the other hand, earnings are expected to increase by 6.20% this year, allowing the bank to continue rewarding investors with its 2.61% dividend yield. Additionally, it continues to trade at a discount with a price-to-earnings multiple of 10.9.
ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
4. Capital One Financial Corporation (NYSE:COF)
Expected Earnings Growth 2024: 4.60%
Latest P/E Ratio: 10.53
Warren Buffett’s Q2 2024 Stake: $1.36 Billion
Number of Hedge Fund Investors as of Q2 2024: 65
Capital One Financial Corporation (NYSE:COF) is one of the best value stocks to invest in, according to Warren Buffett, for diversifying an investment portfolio into the financial service sector. The company is mostly focused on credit cards, auto loans, banking, and savings accounts.
The shares of Capital One Financial Corporation (NYSE:COF) have demonstrated solid gains in value over the last twelve months, thanks to solid fundamentals and deliberate expansion plans. Moreover, the possibility of lower interest rates might decrease the expenses associated with deposits, boosting earnings since Capital One provides rates that are competitive with online services.
It remains well-positioned for growth due to strategic acquisitions, high rates, a strong balance sheet, and a solid Credit Card segment. Its acquisition of Discover Financial for $35.3 billion should position it in a solid position to transform the credit card industry landscape and, therefore, unlock substantial shareholder value.
Capital One Financial Corporation (NYSE:COF) has recently reached an impressive milestone, climbing to a 52-week peak and showing a notable gain over the past year, with a 57.91% rise. This achievement highlights the firm’s robust standing in the consumer finance sector and its sustained ability to pay dividends for 30 years straight, which could boost investor trust.
Amid the significant share price gain, Capital One Financial Corporation (NYSE:COF) is still trading at a discount, going by its price-to-earnings multiple of 10.53 compared to the industry average. While it posted 1% revenue growth in the second quarter, its full-year earnings are expected to grow by 4.60% as it also continues to reward investors with a 1.59% dividend yield.
As of Q2 2024 end, 65 out of the 912 hedge funds covered by Insider Monkey’s database had bought and owned Capital One Financial Corporation (NYSE:COF) shares. Natixis Global Asset Management’s Harris Associates was the largest shareholder courtesy of its $2.10 billion stake.
Here is what Sound Shore Management said about Capital One Financial Corporation (NYSE:COF) in its fourth quarter 2023 investor letter:
“Long-term holding Capital One Financial Corporation (NYSE:COF) was also one of our better performers this quarter. The company boasts a diversified deposits base with about 80% FDIC insured, well above industry average. It is the only major bank 100% in the cloud, which enables better underwriting and quicker response to changes in the environment. This technology also helps reduce operating and fraud cost while freeing up cash flow for reinvestment in marketing to grow products (Venture X card) and build its brand. Periods of stress, like we saw in the banking sector during March, are a reminder of the underwriting acumen and high quality deposits of Capital One. We added to our position after the fallout, knowing that the company’s seasoned management team had steered capably through previous cycles. Today, as credit card delinquencies have risen to more normal levels, Capital One is already reporting a slowing in delinquency growth. Conversely, some peers saw prior underwriting missteps begin to surface in 2023. Currently trading at 9 times 2024 consensus earnings and around book value, we remain enthusiastic about the investment.”
3. Charter Communications, Inc. (NASDAQ:CHTR)
Expected Earnings Growth 2024: 12.80%
Latest P/E Ratio: 8.84
Warren Buffett’s Q2 2024 Stake: $1.14 Billion
Number of Hedge Fund Investors as of Q2 2024: 48
Charter Communications, Inc. (NASDAQ:CHTR) is a communication services company that offers subscription-based internet, video, mobile, and voice services and a suite of broadband connectivity services. While facing the cord-cutting menace, the company has been executing well on several initiatives, growing EBITA through various efficiencies.
Charter Communications, Inc. (NASDAQ:CHTR) has delivered solid financial results amid a challenging business environment by improving service and sales capabilities. For starters, its revenues in the second quarter were up 0.2% to $13.7 billion, beating analysts’ estimates of $13.6 billion. Earnings, on the other hand, increased 2.6% to $5.7 billion.
Amidst challenges in the broadband market, which negatively impact the growth of the main customer base, Charter Communications, Inc. (NASDAQ:CHTR) is experiencing some success in growing its user base in rural areas. This is due to a government initiative aimed at increasing broadband availability in rural regions and its venture into the mobile sector.
In a bid to pursue long-term growth, Charter Communications, Inc. (NASDAQ:CHTR) is analyzing the possibility of merging with Liberty Broadband. The merger will provide access to Alaskan telecom giant GCI, offering it an opportunity for future value creation.
While trading at a price-to-earnings multiple of 9.07, the stock appears to be selling at a discount, given that its earnings are projected to grow by 29.60% in the next quarter and 12.50% in the current year.
Out of the 912 hedge funds listed in Insider Monkey’s Q2 2024 database, 48 had invested in Charter Communications, Inc. (NASDAQ:CHTR). The largest stake, valued at $1.89 billion, was held by Harris Associates of Natixis Global Asset Management.
2. Citigroup Inc. (NYSE:C)
Expected Earnings Growth 2024: 3.30%
Latest P/E Ratio: 8.47
Warren Buffett’s Q2 2024 Stake: $3.51 Billion
Number of Hedge Fund Investors as of Q2 2024: 85
Citigroup, Inc. (NYSE:C) is a diversified financial services company that provides financial products and services to consumers. It is one of the bank stocks trading at a significant discount with a price or earnings multiple of 8.47 while offering a 3.44% dividend yield for generating some passive income.
Citigroup, Inc. (NYSE:C) is one of the best value stocks to invest in, according to Warren Buffett, as it is well poised to generate significant long-term value at the back of an ongoing restructuring drive. The bank has embarked on a restructuring drive to boost operational efficiency and profitability.
The plan entails winding down or selling 14 consumer franchises and reducing the workforce. The bank also plans to flatten its management structure by eliminating 300 senior management roles to lower operating expenses and boost margins.
Citigroup, Inc. (NYSE:C) announced a strong second quarter for the year 2024, achieving a net income of $3.2 billion and a profit per share of $1.52. The bank’s earnings rose by 4%, experiencing notable expansion across its Services, Markets, Wealth, and US Personal Banking sectors.
Additionally, it is making progress on its restructuring drive, having already sold 9 of the 14 consumer units. Its cheap valuation makes it an appealing opportunity for value investors, given that it also pays dividends. It has also announced plans to return $1 billion to shareholders through buybacks in the third quarter.
Diamond Hill Capital, an investment management company, released its first-quarter 2024 investor letter. Here is what the fund said:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
1. Ally Financial Inc. (NYSE:ALLY)
Expected Earnings Growth 2024: 1.60%
Latest P/E Ratio: 6.77
Warren Buffett’s Q2 2024 Stake: $1.15 Billion
Number of Hedge Fund Investors as of Q2 2024: 45
Ally Financial Inc. (NYSE:ALLY) is one of the best value stocks to invest in, according to Warren Buffett, operating as a financial services company. It offers digital financial products and services, including retail installment sales contracts, loans, operating leases, and term loans to dealers.
The chief financial officer reiterated that consumers were struggling with inflation amid the high interest rate environment. Likewise, most of the bank’s customers were struggling with credit challenges.
However, with inflation ticking lower, closer to the recommended 2%, and the Federal Reserve cutting interest rates, liquidity levels are poised to receive a significant boost. Consequently, Ally Financial Inc. (NYSE:ALLY) outlook is looking increasingly positive.
Ally Financial Inc. (NYSE:ALLY) strives to shake up the banking industry by launching a digital-only bank that promises to provide customers with steady, high interest rates on their deposits. It has fulfilled this commitment and done exceptionally well over the last ten years, holding $142 billion in retail deposits.
It regularly offers better interest rates on savings accounts than the major banks, so it attracts customers from big names like Bank of America. Ally Financial Inc. (NYSE:ALLY) returns 4.2% in interest annually to its customers to keep their money with it.
When the Federal Reserve reduces the cost of borrowing, it benefits Ally Financial Inc. (NYSE:ALLY) in its consumer banking sector. Reduced borrowing costs allow the company to provide consumers with lower interest rates on car loans. This will assist consumers in affording vehicles and increase the probability of loan repayment in full. Ally has noted a rise in car loan defaults in the latest quarters, which could negatively impact earnings. It aims to mitigate the risk that this issue intensifies by lowering interest rates.
Consequently, Ally Financial Inc. (NYSE:ALLY) is a bargain as the Federal Reserve continues to cut interest rates. While trading with a price-to-earnings multiple of 6.77, it offers a dividend yield of 3.53%.
At the end of Q2 2024, 45 hedge funds tracked by Insider Monkey held stakes in Ally Financial Inc. (NYSE:ALLY), down from 47 in the previous quarter. These stakes have a total value of over $2.36 billion. With 29 million shares, Berkshire Hathaway was the company’s leading stakeholder in Q2.
The best value stocks to invest in, according to Warren Buffett, are companies trading at great discounts and well poised to generate long-term value. However, given that the artificial intelligence arms race is just but starting, there are under-the-radar AI stocks trading at highly discounted valuations that hold greater promise for anyone looking to diversify their portfolio. If you are looking for an AI stock that is more promising than ALLY, check out our report about the cheapest AI stock.
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