With billions in cash, Buffett faces a two-pronged dilemma. First, the company or stock he invests in must be liquid and large enough to handle massive purchase orders without unduly influencing the stock itself. Likewise, any investment’s projected returns must be significantly higher for the risk assumed than most retail investors realize, considering higher rates today mean that he can collect 5% or more risk-free on those billions.
These fairly rigid guiding principles mean Buffett is cut off from some of the most lucrative value investment sectors today: small-caps and micro-cap value stocks. Deploying his cash into any of them would send per-share pricing flying at the quantity he’d need to make it worth buying. That’s why you’ll never see Buffett buying value stocks below $10 billion in market capitalization.
But luckily, those rules don’t apply to you. Instead, buying these value stocks could set you up to be the next Warren Buffett, considering each has significant upside potential that often goes overlooked. While not all of them are small-caps, together they represent a solid blend of value stock sectors, types and sizes to round out a portfolio.
Intuitive Surgical (ISRG)
Intuitive Surgical (NASDAQ:ISRG) is on the higher side of the value stock market cap spectrum. It’s also unique in that it blends value and growth through merging advanced technology, robotics, and the constant evolution of healthcare. A stable provider of high-end, specialized medical equipment, Intuitive Surgical is a component stock in both the S&P 500 and Nasdaq-100 indices. Unlike competitors focused on traditional medical hardware, Intuitive Surgical revolutionizes surgical procedures, enhancing both provider efficiency and patient outcomes.
The company has been expanding aggressively globally, especially as the global healthcare sector rebounds and adapts to post-pandemic rhythms. Its latest quarterly earnings report showed a 16% year-over-year (YoY) increase in its robotic surgery system global usage and a 14% rise in new system installations. With an 11% increase in sales and net income rising to $545 million from $355 million, Intuitive Surgical solidifies its standing as a top MedTech stock for long-term investment.
This year, Intuitive Surgical is poised to introduce a next-generation da Vinci platform, as CEO Gary Guthart announced. The new model will boast “10,000 times the processing power” of current models, significantly enhancing data analysis, sensing technology and digital and analytical capabilities.
Value Stocks to Buy: Titan Machinery (TITN)
Small-cap agriculture and construction equipment value stocks like Titan Machinery (NASDAQ:TITN) might not enjoy the same level of recognition as larger counterparts, such as Deere & Co (NYSE:DE), but its robust fundamentals speak volumes. Titan Machinery recently released its fourth quarter and year-end reports, surpassing expectations with a 25% annual sales increase and nearly a 10% rise in yearly earnings despite rising supply chain and fuel costs.
Yet, no matter these strong fundamentals, Titan Machinery appears significantly undervalued, trading at just 0.19x sales, 4.6x earnings and 0.80x book value. That undervaluation seems particularly stark given the company’s 79% income growth over three years. With a conservative outlook for 2025, projecting single-digit gains across its segments and a slight dip in year-end earnings, surpassing these modest forecasts could lead to a surge in Titan’s stock value. At current prices, this small-cap value stock is an easy buy.
Iridium Communications (IRDM)
Growth stock investor Cathie Wood includes Iridium Communications (NASDAQ:IRDM) in several funds, but that doesn’t detract from its underlying value stock status. Despite a 50% drop over the past year, this decline offers an ideal buying opportunity for those interested in adding this small-cap value stock to their portfolios.
The stock’s recent downturn stemmed primarily from Iridium’s November 2023 decision to terminate its joint venture with Qualcomm (NASDAQ:QCOM). The original plan was to leverage Qualcomm’s expertise in cell-centric semiconductors to develop chips enabling standard cell phones to connect to Iridium’s low-earth orbit satellite array. However, ending this partnership appeared to sideline Iridium in the fast-evolving space-based telecom market.
Nevertheless, Iridium is intensifying its efforts to meld its satellite constellations with consumer smartphones. The strategic shift could enhance the stock’s value, establishing Iridium as a more prominent player in the specialized telecom industry. Rather than adapting cell phones to match their satellite capabilities, Iridium is modifying its satellite protocols to accommodate existing devices. That strategy should expand Iridium’s total addressable market, paving the way for further growth for this space-focused value stock.
Value Stocks to Buy: SharkNinja (SN)
SharkNinja (NYSE:SN), a diverse appliance manufacturer across multiple consumer segments, including ice cream makers and vacuums, is a unique consumer discretionary value play despite going overlooked by most investors. Since its market debut during the difficult summer of last year, SharkNinja’s stock outperformed most, climbing 130% post-listing in under a year, even outstripping the S&P 500’s end-of-year bull run.
The company’s appeal lies not just in its short-term market resilience but also in its robust operational fundamentals, which promise substantial growth. The company has maintained a 20% annual increase in sales since 2008, with no slowdown anticipated soon.
Investors eyeing SharkNinja should consider buying in before its May 9th earnings report. Following subdued annual guidance after the fourth-quarter report, which projected fairly flat sales for the early part of 2024, even a slight revenue increase could propel the stock upward.
Garrett Motion (GTX)
Garrett Motion (NASDAQ:GTX) is a dual-pronged value stock, trading at low multiples — just 8x forward earnings and 0.5x sales — and operating as an overlooked player in the increasingly unloved green tech and sustainable driving sectors. This industrial manufacturer produces various automotive parts that enhance emission reduction and support zero-emission technology, including alternative fuel engines and turbochargers for gasoline and diesel vehicles.
While pure-EV companies face challenges due to dwindling consumer interest, as demonstrated by the surge in hybrid and gasoline vehicle sales compared to electric counterparts, Garrett Motion offers a viable alternative for investors keen on sustainability but realistic about the slow pace of global EV adoption.
The recent dip in Garrett Motion’s stock followed a lackluster earnings report that noted a 6% quarterly sales drop. However, annual sales remained stable, and the company’s margins and free cash flow stayed robust. This value stock suffers from a market fixation on flashy growth opportunities. But, as economic dynamics shift away from mega-caps currently dominating market trends, small-cap value stocks like Garrett Motion will begin gaining traction.
Value Stocks to Buy: Sirius XM (SIRI)
Of course, using Warren Buffett’s value stocks as inspiration doesn’t mean you can’t dip into the same well. A Warren Buffett endorsement remains a strong signal for those scouting for dependable value stocks, and recently, he has been actively buying Sirius XM (NASDAQ:SIRI). Despite a general trend of selling rather than buying at Berkshire Hathaway, Sirius XM remains an exception.
Buffett values Sirius XM for potential corporate restructuring and as a robust value investment. Trading at low multiples, Sirius XM boasts steady, reliable sales. The company has consistently maintained EBITDA margins of around 30% for the last four years and has generated over $1 billion in free cash flow during this period. Additionally, Sirius XM offers an attractive 3.46% dividend yield with a 33% payout ratio, showcasing efficient cash management and supporting reinvestment alongside growth.
With Sirius XM’s price nearing penny stock levels, investors looking for a turnaround have a prime opportunity to build a significant position at a low cost.
Lithium Americas (LAAC)
One of Buffett’s least favorite value stock prospects is anything dealing in commodities. But Lithium Americas (NYSE:LAAC) is an easy exception to the rule, considering its current valuation and market potential. That’s despite the recently sluggish lithium market. The demand for lithium, driven primarily by advances in battery technology and shifts towards renewable energy, is projected to surge more than 30% annually through 2030. Over the past year, though, Lithium Americas encountered slow demand and a massive oversupply, which depressed spot prices. But demand is accelerating, and analysts are now predicting an undersupply that could elevate spot prices, benefiting Lithium Americas.
Adding to this optimistic outlook, Argentina’s new president, Javier Milei, has been a bullish influence on the region’s lithium mining prospects, aiming to reduce operational barriers. His discussions with Elon Musk underscore lithium’s pivotal role in electric vehicle production, further encouraging regional investors.
With the stock trading below its book value and at a lower price-to-forward earnings ratio than in recent years, Lithium Americas is positioned as an attractive commodity-centric value stock, ready to capitalize on the anticipated market adjustments and economic developments.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.