In a market full of crazy swings, Warren Buffett's 'bargain' ideas might have the best upside

In a market full of crazy swings, Warren Buffett's 'bargain' ideas might have the best upside
In a market full of crazy swings, Warren Buffett’s ‘bargain’ ideas might have the best upside

The stock market continues to bump up against all-time highs — and that’s making several Wall Street strategists nervous.

The S&P 500 has a historical price-to-earnings (P/E) ratio in the mid-teens. Today, it sits at just below 30.

In the hottest sectors, it’s not unusual to find P/E ratios in the triple-digits.

Growth investing has worked out well for investors — especially during the market frenzy over the past year. But the power of value investing shouldn’t be ignored.

After all, Berkshire Hathaway Chairman and CEO Warren Buffett has largely relied on bargain hunting to grow his net worth to $105 billion.

Here’s a look at three value-type opportunities in Berkshire’s portfolio. One (or all) of them might be worth following with some of your spare change.

Kraft Heinz (KHC)

Bottles of Kraft Heinz mayonnaise and ketchup on a supermarket shelf in New YorkBottles of Kraft Heinz mayonnaise and ketchup on a supermarket shelf in New York
rblfmr/Shutterstock

Kraft Heinz is a household name. The current company was formed by the merger of Kraft Foods and Heinz in 2015.

Today, it’s one of the largest packaged foods companies in the world with annual sales of roughly $26 billion.

As of June 30, Buffett’s company owned over 325 million shares of Kraft, worth about $11.7 billion at the current share price. That makes Kraft the fifth largest public holding at Berkshire.

Business got a solid boost last year as people stocked up their pantries amid pandemic. And things have only continued to improve.

In Q3, organic sales climbed 1.3% year over year and were 7.6% above the comparable pre-pandemic period in 2019.

Shares are up 6% year to date but are down more than 50% over the past five years.

Bank of America (BAC)

Bank of America branch building in Beaverton at twilightBank of America branch building in Beaverton at twilight
Hrach Hovhannisyan/Shutterstock

Bank of America is Berkshire’s second largest holding — only tech giant Apple occupies more space in the portfolio.

At the end of June, Berkshire owned more than 1,000,000 shares of the banking gorilla, a stake now worth around $49 billion.

In its most recent quarter, Bank of America’s revenue grew 12% year over year to $22.9 billion. Profit climbed an even more impressive 58% to $7.7 billion.

The company saw strong credit quality as net charge-offs fell to 20 basis points of average loans, its lowest loss rate in 50 years.

Bank stocks have performed well as a group this year. In fact, Bank of America, Goldman Sachs, Wells Fargo, and Morgan Stanley have all more than doubled over the past 12 months.

But because earnings have also improved substantially, bank valuations are in line with the sector’s five-year average.

Bank of America has a P/E ratio of about 14.

If you’re on the fence about jumping in at the current level, some apps might give you a free share of Bank of America or Wells Fargo just for signing up.

Verizon Communications (VZ)

Verizon store signage day exteriorVerizon store signage day exterior
Elliott Cowand Jr/Shutterstock

Verizon is one of the rare large-cap stocks that hasn’t soared over the past couple of years. And as a value investor, Buffett is pouncing on the opportunity.

Berkshire loaded up on 146.7 million shares of Verizon in Q4 2020. And by Q2 2021, the position had grown to 158.8 million shares with a market value estimated at $8.4 billion.

The telecom giant fits nicely in Berkshire’s portfolio: It runs a recurring business, gushes free cash flow, and pays generous dividends.

In Q3, Verizon added 429,000 postpaid phone customers. Meanwhile, operating revenue rose 4.3% to $32.9 billion.

The sector hasn’t been an investor favorite this year. Verizon — along with rivals AT&T and T-Mobile US — are all down more than 10% year to date.

As it stands, Verizon has a P/E ratio of 10.

Socks or stocks?

Excited african man customer receive good parcel open cardboard box at home satisfied with great purchaseExcited african man customer receive good parcel open cardboard box at home satisfied with great purchase
fizkes/Shutterstock

Even if you don’t agree with Buffett on these specific stocks, you should still implement his time-tested strategy of buying high-quality assets at discounted prices.

Of course, you can apply this value-oriented approach in everything you do — not just investing.

For example, a free browser application allows you to automatically hunt for lower prices and coupons when shopping online.

Because let’s face it: Amazon doesn’t always have the best prices.

It’s free to use and takes seconds to set up.

As Buffett once said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Trending Ideas

Featured Stocks On The Move

Daily Rundown

Top 3 Stocks in Leading Sectors
  • 3 Electric Power Stocks To Buy Now

    Featured Content Hawaiian Electric Industries, Inc. (HE) Hawaiian Electric Industries, Inc. is a holding company that provides electric utility services and financial services in Hawaii. Through its subsidiaries, it supplies... Read More

  • 3 Bank Stocks To Buy Now

    Featured Content Comerica Incorporated (CMA) Comerica Incorporated is a financial services company headquartered in Dallas, Texas, offering a range of banking products and services, including commercial and retail banking, wealth... Read More

  • 3 Machinery Stocks To Buy Now

    Featured Content Alta Equipment Group Inc. (ALTG) Alta Equipment Group Inc. is an integrated equipment dealership platform in the United States, operating through three segments: Material Handling, Construction Equipment, and... Read More

  • 3 Silver Stocks To Buy Now

    Featured Content Gatos Silver, Inc. (GATO) Gatos Silver, Inc. is a precious metals mining company primarily focused on silver and zinc production. Its flagship Cerro Los Gatos mine in Mexico... Read More

  • 3 Metal Production Stocks To Buy Now

    Featured Content Century Aluminum Company (CENX) Century Aluminum Company is a primary aluminum producer, with operations that include the production of high-purity, low-carbon aluminum used in automotive, aerospace, and industrial... Read More

  • 3 Medical Drug Stocks To Buy Now

    Featured Content Teva Pharmaceutical Industries Limited (TEVA) Teva Pharmaceutical Industries Limited is a global pharmaceutical company specializing in generic and specialty medicines. The company provides a wide range of treatments... Read More

  • 3 Paper Product Stocks To Buy Now

    Featured Content AptarGroup Inc. (ATR) AptarGroup Inc. is a global leader in providing innovative dispensing and packaging solutions, serving diverse industries like beauty, personal care, and pharmaceuticals. They focus on... Read More

  • 3 Restaurant Stocks To Buy Now

    Featured Content Brinker International, Inc. (EAT) Brinker International, Inc. operates well-known restaurant brands such as Chili’s Grill & Bar and Maggiano’s Little Italy. The company is a leader in the... Read More

  • 3 Investment Brokerage Stocks To Buy Now

    Featured Content Robinhood Markets, Inc. (HOOD) Robinhood Markets, Inc. is a financial services company known for its commission-free trading platform, which allows users to trade stocks, options, cryptocurrencies, and ETFs.... Read More

  • 3 Shipping Stocks To Buy Now

    Featured Content ZIM Integrated Shipping Services Ltd. (ZIM) ZIM Integrated Shipping Services Ltd. is a global container shipping company that provides cargo transportation services worldwide. The company operates a modern... Read More

  • 3 Mining Stocks To Buy Now

    Featured Content Perpetua Resources Corp. (PPTA) Perpetua Resources Corp. is a mining company focused on the exploration and redevelopment of the Stibnite Gold Project in Idaho, which is one of... Read More

  • 3 Airline Stocks To Buy Now

    Featured Content General Electric Company (GE) General Electric Company is a global industrial conglomerate with operations spanning sectors such as aviation, healthcare, power, and renewable energy. GE is known for... Read More