Top Three Inexpensive Stocks Recommended by Warren Buffett that are Must-Buys Today

Top Three Inexpensive Stocks Recommended by Warren Buffett that are Must-Buys Today

If you’re looking for a delicious dish to make, check out a famous chef’s favorite recipes. If you are looking for a good book to read, check out the list of books recommended by an outstanding author. And if you’re looking for the best stocks to buy, look at stocks owned by a legendary investor.

No one fits this last example better than Warren Buffett. All the actions he owns can be easily found in Berkshire Hathawayregulatory filings. As you might expect given Buffett’s investment philosophy, the group offers some good deals. Here are three absurdly cheap Buffett stocks that are obvious buys right now.

1. Herringbone

Buffett seems bullish on the oil and gas industry these days. Two of the three actions he bought for Berkshire in the fourth quarter of 2023 were oil stocks. Berkshire has particularly charged Chevron (NYSE: CVX). This is the fifth position in the conglomerate’s portfolio.

Chevron’s valuation has not reached sky-high levels like many stocks have in the new bull market. Its shares trade at less than 12.3 times forward earnings. By comparison, the Multiples of Forecast Earnings for the S&P500 the S&P 500 index and energy sector are 21.4 times and 13 times, respectively.

Why is Buffett buying Chevron stock? He hasn’t given a public explanation for his decision, but it’s a safe bet that the Oracle of Omaha is predicting higher oil prices in the future. The long-term dynamics of oil and gas supply and demand should work in Chevron’s favor.

There’s also another key reason to buy Chevron: its dividend. The company has increased its dividend payout for 37 consecutive years. Chevron’s dividend yield is 4.2%, meaning investors will be paid handsomely for waiting for oil prices to rise.

2. Lennar

Lennar (NYSE:LEN) isn’t one of the stocks Buffett has bought recently. Berkshire even liquidated its position in another homebuilder stock in the fourth quarter (Dr. Horton). However, I think there is still a lot to like about homebuilders, Lennar in particular.

Valuation ranks at the top of the list. Lennar has a low forward earnings multiple of 11.4 times. This low multiple is particularly attractive due to the company’s growth prospects.

America needs more houses. Real estate developer and investment firm Hines estimates a shortage of about 3.2 million homes. This is great news for Lennar, one of the nation’s largest homebuilders.

Lennar could get a boost from the Federal Reserve this year. At the Fed’s last meeting, officials indicated that three interest rate cuts could be expected in 2024. The rate cuts would lower mortgage rates and likely spur more new housing starts.

3. Sumitomo

In his latest letter to Berkshire Hathaway shareholders, Buffett discussed eight stocks he plans to hold “indefinitely.” Japanese trading house Sumitomo (OTC: SSUM.F) (OTC: SSUM.Y) was part of the group, as were four of his peers.

Sumitomo is the most attractive of the five Japanese stocks in Berkshire’s portfolio. Its shares trade at just over 9 times trailing 12-month earnings.

Buffett likes Sumitomo for several reasons. It is very diversified with investments in a wide range of industries. The company follows shareholder-friendly policies, including strong dividends and smart stock buybacks. Sumitomo management is not increasing its own compensation as some U.S. executives are doing.

This Japanese stock is unlikely to experience explosive growth. However, I expect Sumitomo to be able to generate overall returns that will delight most investors. Buffett wouldn’t consider it a permanent stock if he didn’t feel the same way.

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Keith Speights holds positions at Berkshire Hathaway and Chevron. The Motley Fool ranks and recommends Berkshire Hathaway, Chevron and Lennar. The Motley Fool has a disclosure policy.

3 Absurdly Cheap Warren Buffett Stocks That Are Obvious Buys Right Now was originally published by The Motley Fool

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