Warren Buffett’s mentor, Benjamin Graham, literally wrote the book on value investing. Although Buffett doesn’t strictly adhere to all of the lessons that Graham taught, he remains a value investor at heart.
To be sure, Buffett’s Berkshire Hathaway (BRK.A 1.66%) (BRK.B 1.71%) owns stakes in several companies that many investors would view as expensive. But a few of Berkshire’s holdings definitely stand out for their bargain valuations. Here are three Buffett stocks that are dirt cheap right now.
1. General Motors
Buffett first bought shares of General Motors (GM 2.65%) for Berkshire back in 2012. The bet on the big carmaker hasn’t paid off very well. GM’s stock performance has lagged well behind the S&P 500 over the past decade. However, Berkshire’s position has grown to a 4.3% stake in the company.
What does Buffett like about GM? You can put CEO Mary Barra near the top of the list. The multibillionaire investor has praised Barra’s leadership on multiple occasions in recent years. It doesn’t hurt that Buffett has been a fan of GM’s Cadillac luxury cars.
He almost certainly also likes GM’s valuation right now. The stock trades at only 5.5 times expected earnings. By comparison, Berkshire itself has a forward price-to-earnings (P/E) ratio of over 22.5.
2. Occidental Petroleum
Buffett has poured more money into buying Occidental Petroleum (OXY 0.06%) shares than any other stock in recent months. Berkshire now owns 20.2% of the oil giant. Occidental ranks as the seventh-largest holding in Berkshire’s portfolio.
Scooping up more shares of Occidental has turned out to be a shrewd move. The stock has skyrocketed more than 120% year to date. Higher oil prices have served as a major tailwind for the company.
Despite this huge gain, Occidental remains very cheap. Its shares trade at only 6.2 times expected earnings. That’s well below the average forward P/E of 8.0 for the energy sector.
HP (HPQ 1.26%) stands out as another top stock that Buffett has piled into over the past few months. Berkshire now owns an 11.7% stake in the technology company, enough to make the stock its 12th-largest holding.
Unlike Occidental, HP hasn’t been a winner for Buffett so far. The tech stock has fallen nearly 10% this year, with much of the decline coming after Berkshire’s regulatory filing listing investments made in the first quarter.
There’s no question, though, that Buffett likes HP’s valuation. Its shares currently trade at 7.8 times expected earnings. That’s far lower than the information technology sector’s forward P/E of 22.4.
Are they buys?
Regular investors shouldn’t automatically copy Buffett and buy every stock that Berkshire buys. For example, I’m not sold on HP’s prospects. The company’s revenue growth isn’t very impressive. HP is especially facing headwinds with its printer business, which used to be one of its brightest spots.
I have mixed feelings about GM. High inflation and supply chain issues could continue to present problems for the company over the short term. The U.S. could also still face a recession. CEO Barra acknowledged in the company’s second-quarter earnings call that plans are being made to respond to “several downturn scenarios” with the overall economy.
On the other hand, I suspect that GM could perform much better over the longer term than it has in recent years. Increasing consumer adoption of electric vehicles combined with the company’s commitment to EVs just might make the stock a winner for patient investors. I’d like to see what happens with the economy, though, before considering buying GM.
There’s a totally different dynamic for Occidental. My hunch is that oil and gas prices will remain high and could increase by the end of the year. Although the company anticipates a softer second half of 2022, it should still be strong compared to the same period in previous years.
I think that Occidental stock could be a buy for investors focusing on the near term. However, the overall shift away from fossil fuels isn’t likely to lose momentum. Occidental might not be nearly as good of a pick later this decade.
Keith Speights has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and HP. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.