Now that stocks have started to sell off and now that interest rates have begun to rise, many investors are looking for bargains out there in the stock market. Investors are always looking for good stocks to buy, and the stocks inside the Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) portfolio are often where many investors start to search for value, income and opportunity for the long term.
24/7 Wall St. has decided to pull out the “cheapest” stocks from the latest Buffett stock holdings to see where the best opportunities are for long-term investors today. Buffett is of course a value investor who seeks growth at a reasonable price, and he generally prefers companies that pay a dividend, even though Berkshire Hathaway Inc. (NYSE: BRK-B) itself does not do so.
Our screens focused primarily on stocks that had the most upside to the Thomson Reuters consensus price targets from Wall Street. We also looked at other valuation metrics outside of this year’s expected earnings multiples and added in color on each if applicable. Due to currency fluctuations and international analysis changing up the mix, we have chosen to avoid covering the foreign companies listed as American depository receipts (ADRs).
What is amazing is the many companies in the full Buffett portfolio that are trading close to or even above what the analyst community might refer to as fair value. Investors just need to remember that Warren Buffett himself will not care at all what Wall Street values something at for a year out. He would simply remind investors that he is willing to pay up for solid quality companies that he knows are going to be present and remain attractive through good times and bad times.
Deere & Company (NYSE: DE) trades at close to $86, and the $97.89 consensus price target implies upside of almost 14%. Deere comes with a 2.3% dividend yield. The four million shares in Buffett’s war chest is worth about $344 million, but it will be worth almost $400 million or so if you include the dividends in a year, if Wall Street is right. Be advised that Buffett might agree with the most optimistic analyst target out there of $120 per share, since this machinery giant trades at only about 10 times earnings.
General Motors Co. (NYSE: GM) is still a fairly new position, now at 25 million shares, for Team Buffett. Buffett probably thought he would get an index-related bounce, and his stake is worth about $850 million. GM’s stock has risen to more than $34, which still leaves more than 15% upside to the consensus price target of $39.53. Team Buffett likely is hoping that there is still years of auto sales growth ahead, and the forward earnings multiple of 10 times earnings is just a tad cheaper than the dividend-paying Ford Motor Co. (NYSE: F) at almost 11 times earnings. The highest analyst target out there is substantially higher and actually above $50, although we would caution that GM pays no dividend.