In an era where a short-term mindset is popular, Buffett’s long-term perspective stands out. Typically grounded in the principles of value investing, he picks wonderful businesses at a discount to intrinsic value. These companies often have competitive moats that lead to long-term outperformance.
Often, investors watch Berkshire’s portfolio for Buffett’s investment moves. While every investor should conduct their own due diligence, cloning his portfolio can be a winning strategy. Usually, his stock picks are long-term picks that will compound earnings for decades.
Bank of America (BAC)
Bank of America (NYSE:BAC) is one of the largest financial institutions in the U.S. It has a significant retail banking franchise with an expansive network of over 3,800 U.S. branches. Besides retail banking, it has operations in wealth management and investment banking.
Over the past year, BAC stock has underperformed due to its held-to-maturity portfolio. Based on the third quarter report, unrealized losses on these securities were $131.6 billion. However, market concerns are overblown, given that management intends to hold these bonds to maturity. Thus, the bank doesn’t expect these paper losses to translate to actual losses.
Even under a worst-case scenario, Bank of America can easily absorb those losses. It has a rock-solid balance sheet with excess capital and liquidity. At the end of the third quarter of 2023, the bank had average global liquidity sources of $859 billion. Additionally, the common equity tier 1 ratio was 11.9%, a 29-basis point increase from the previous quarter.
Since Buffett bought Bank of America after the Great Financial Crisis, the stock has remained in his portfolio. Notably, while he has sold Wells Fargo (NYSE:WFC) and U.S. Bancorp (NYSE:USB), he retained BAC stock. That’s a clear indication that he holds the bank in high regard.
Rising rates are creating an opportunity in one of the most undervalued Warren Buffett stocks to buy. Using the latest results, it trades at a discount to book value per common share of $32.65. For income-focused investors, it offers a competitive 3.5% dividend yield, which recently increased by 9%.
Chevron (CVX)
With extensive operations spanning exploration, production, refining and marketing, Chevron (NYSE:CVX) offers a compelling investment case. It has high-quality reserves, a robust balance sheet, great shareholder returns and diversified operations.
First, the company boasts some of the highest-quality reserves in the industry. This position has strengthened after the recent $53 billion acquisition of Hess (NYSE:HES). The acquisition brings in the Stabroek block in Guyana, one of the most profitable assets in the industry.
Secondly, Chevron’s balance sheet remains one of the strongest in the industry. It’s no coincidence, given that Warren Buffett likes companies in excellent financial shape. With a robust balance sheet, the company can maintain its excellent shareholder return program. Also, it can navigate cyclical downturns and invest through the cycle.
Lastly, the company’s diverse asset base and operations provide a hedge against regional disruptions and market volatility. It has a high-quality, long-duration portfolio in the Permian Basin, Gulf of Mexico, West Africa, Australia and now Guyana. Furthermore, it continues to grow its chemicals and downstream operations. Among undervalued Warren Buffett stocks, Chevron is a no-brainer investment.
Kraft Heinz (KHC)
Kraft Heinz (NASDAQ:KHC) is one of the largest food and beverage companies globally. It boasts a portfolio of iconic brands, including household names like Kraft, Heinz, Oscar Mayer and Planters. After the recent selloff, the stock presents an intriguing opportunity.
So, what makes it one of the favorite undervalued Warren Buffett stocks to buy? Kraft is a predictable business with a diverse product range, significant market share and a history of stable returns. Its brands are a staple in U.S. households, and it enjoys 97% consumer penetration. Due to the significant consumer loyalty and trust over the decades, the company has a stable demand base.
It also enjoys economies of scale, which allow for cost efficiencies across its supply chain. The company’s has over 80 factories globally. Its vast distribution network ensures that its products are widely available in many emerging and developed markets.
Kraft Heinz’s time-tested brands and strategic growth initiatives present a balanced investment opportunity. With its potential for operational improvements through slowing inflation and supply chain improvements, it’s one of the top undervalued Warren Buffett stocks to buy. It trades at a forward price-to-earnings of 11 and management expects 1 to 2% long-term growth.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.