We recently published a list of 10 Cheap Value Stocks to Invest in According to Warren Buffett. In this article, we are going to take a look at where Chevron Corporation (NYSE:CVX) stands against other cheap value stocks to invest in according to Warren Buffett.
Has Warren Buffett given up on stocks amid overstretched valuations? That’s the big question, as the “Oracle of Omaha” has been a net seller in recent months. Buffett and his top advisors, Todd Combs and Ted Weschler, have sold $166.2 billion, more stock than they have bought over the last eight reported quarters.
The selloff spree has seen Berkshire Hathaway’s cash pile swell to over $325 billion, with more than $288 billion invested in Treasuries. The adjustments come amid growing concerns that the stock market has become pricey, making it difficult to find anything of value to buy at discounted valuations.
Some of the selloffs also came amid concerns that corporate income taxes would climb with the continuation of a democrat administration. However, that is not expected to happen with Republicans controlling both houses of Congress and Donald Trump at the helm.
READ ALSO: 10 Best Blue Chip Stocks to Buy for 2025 and Billionaire Israel Englander’s Top 10 Stock Picks Heading Into 2025.
While Buffett has been a net seller in recent months, the actions point to the billionaire investor accumulating capital to pursue cheap stocks once the current correction ends. An optimist in his own right, Buffett has always insisted that even the worst recessions are only temporary and investors can find silver linings at depressed valuations.
While the stock market is still on an upswing, a fantastic buy opportunity should emerge when stock prices fall, according to the billionaire investor.
“[I]n the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank,” he explained. “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price,” Buffett said.
Warren Buffett, “the Oracle of Omaha,” will go down in history as one of the most effective and successful value investors of all time. In the six decades that he has graced the ups and downs of Wall Street, his investment and holding company Berkshire Hathaway has cumulatively gained 5,500,000%. The fact that the investment firm is up by about 115% over the past five years affirms why Buffett is still a force to reckon with.
Nevertheless, the billionaire investor known for a value investing strategy that focuses on buying undervalued securities and holding them long-term appears to be slowly exiting the active investing fray. The 94-year billionaire investor has already named his middle son, Howard Buffett, his successor. Howie is tasked with steering the multibillion-dollar conglomerate Berkshire Hathaway as a non-executive chairman.
When asked why he settled on Howie, Buffett was clear: “He is getting it because he’s my son. I’m very, very, very lucky in the fact that I trust all three of my children,” he told the Wall Street Journal.
As Warren Buffett exits the stage, all eyes are on Howie to ensure Berkshire Hathaway, with over $1 trillion, continues to thrive. The holding company with one of the most diversified investment portfolios has enjoyed a compound annual growth rate of 19.8% compared to 10.2% for the S&P 500 since 1965. Diversification has proved to be a compelling investment play that has allowed Berkshire Hathaway to spread risk and, most importantly, shrug off volatility in some sectors.
While the US stock market has shown signs of exhaustion, resulting in significant pullbacks, Warren Buffett, an eternal optimist, has frequently advised against betting against America. He acknowledges that stock market corrections and US recessions are natural parts of economic cycles. Still, he believes that bull markets and periods of economic growth tend to last longer than downturns.
This belief underpins his continued bullish stance on the US stock market, even as valuations seem stretched after two years of strong rallies driven by the AI boom and a resilient economy. Despite high valuations, Buffett continues to add to positions he believes will outperform while trimming others.
Even though Buffett has been a net seller over the past two years, he has continued to bolster holdings in stocks that he believes are fairly valued. Consequently, according to Warren Buffett, the 10 cheap value stocks to invest in are those of time-tested businesses well poised to generate significant shareholders in the long run.
Our Methodology
To make the list of 10 cheap value stocks to invest in according to Warren Buffett, we scanned Berkshire Hathaway’s investment portfolio. The focus was on stocks trading with a forward price-to-earnings multiple of less than 15, as of January 10. We then settled on the top ten holdings with low P/E and examined why they stand out as value investments. Finally, we ranked the stocks in ascending order based on Berkshire Hathaway’s stake in them.
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).
An aerial view of an oil rig at sea, the sun glinting off its structure.
Chevron Corporation (NYSE:CVX)
Forward Price to Earnings Ratio: 12.72
Berkshire Hathaway Stake Value: $17.47 Billion
Number of Hedge Fund Holders: 63
Chevron Corporation (NYSE:CVX) is an integrated energy company that explores, develops, produces and transports crude oil and natural gas. It is one of the stocks well poised to benefit from friendly policies from Donald Trump’s administration.
Chevron’s edge as one of the best-value stocks stems from its diversified energy business. The company maintains operations upstream, which entails energy production; midstream, which involves operating pipelines; and downstream, which is essentially a chemicals and refining business. Given that fees drive the midstream business, Chevron Corporation (NYSE:CVX) has a reliable source of revenue on its exposure regardless of prevailing economic conditions. Its downstream business also shields it from low oil prices.
While oil prices will always be a key determinant of the company’s performance, the midstream and downstream business units help offset the peaks and valleys in the energy sector due to oil price fluctuations. Owing to the diversified nature of the core business, Chevron Corporation (NYSE:CVX) has succeeded in generating free cash flow, consequently reducing its debt from $45 billion to about 25 billion. Likewise, it has returned shareholder value with its 4.34% dividend yield.
Here is what TCW Relative Value Large Cap Fund said about Chevron Corporation (NYSE:CVX) in its Q3 2024 investor letter:
“Chevron Corporation (NYSE:CVX), headquartered in San Ramon, CA, is an integrated energy company. At elimination, the stock had a $273 billion market capitalization and met all five valuation factors, including a robust 4.4% dividend yield. Chevron’s planned acquisition of Hess† would yield a strong restructuring catalyst through elimination of duplicate corporate costs and a new markets catalyst through Hess’ 30% interest in the Stabroek oilfield off Guyana; these blocks have a very low cost of supply and decades of reserves that would support strong free cash flow. While Chevron recently received Hart[1]Scott-Rodino (HSR) clearance to acquire the company, the closure timing has extended from Q4 2024 to possibly to Q2 2025 as Chevron is engaged in arbitration with peers ExxonMobil (XOM; 2.47%**) and Chinese state-owned CNOON over rights of first refusal (ROFR) for Hess’ interest in Stabroek. As Chevron’s expected arbitration resolution timeline has slipped, we believe that ExxonMobil and CNOOC’s ROFR case may have more merit than expected, thus putting the entire Hess acquisition at risk. Given an increasingly reasonable outcome that Chevron might abandon the Hess acquisition altogether, we eliminated the position in the stock.”
Overall, CVX ranks 2nd on our list of cheap value stocks to invest in according to Warren Buffett. While we acknowledge the potential of CVX as an investment, our conviction lies in the belief that 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 CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
