3 Warren Buffett Stocks That Are Very Cheap: Are They Buys?

Warren Buffett’s mentor, Benjamin Graham, literally wrote the book on value investing. Although Buffett does not strictly adhere to all the lessons Graham taught, he remains a value investor at heart.

Of course, Buffett Berkshire Hathaway (BRK.A 1.66%) (BRK.B 1.71%) holds stakes in several companies that many investors would consider expensive. But a few of Berkshire’s holdings definitely stand out for their advantageous valuations. Here are three Buffett stocks that are very cheap right now.

1. General Motors

Buffett first bought shares of General Motors (GM 2.65%) for Berkshire in 2012. The bet on the big automaker didn’t pay off very well. The performance of GM’s shares is well below that of S&P500 during the last decade. However, Berkshire’s position has shifted to a 4.3% stake in the company.

What does Buffett like about GM? You can put CEO Mary Barra at the top of the list. The multi-billionaire investor has praised Barra’s leadership on several occasions in recent years. It doesn’t hurt that Buffett is a fan of GM’s Cadillac luxury cars.

He almost certainly likes GM’s valuation right now, too. The stock trades at just 5.5 times expected earnings. By comparison, Berkshire itself has a price-to-earnings (P/E) ratio of over 22.5.

2. Western Oil

Buffett invested more money in the purchase western oil (OXY 0.06%) stocks than any other stock in recent months. Berkshire now owns 20.2% of the oil giant. Occidental ranks seventh among holdings in Berkshire’s portfolio.

Buying back more shares of Occidental turned out to be a smart move. The stock has soared more than 120% since the start of the year. Rising oil prices were a major tailwind for the company.

Despite this huge gain, Occidental is still very cheap. Its shares are trading at just 6.2 times expected earnings. This is well below the average PER of 8.0 for the energy sector.

3. Resume

resume (HPQ 1.26%) stands out as another top stock Buffett has piled into in recent months. Berkshire now owns an 11.7% stake in the tech company, enough to make the stock its 12th-largest holding.

Unlike Occidental, HP hasn’t been a winner for Buffett so far. The tech stock has fallen nearly 10% this year, with much of the decline coming after Berkshire’s investments in the list of regulatory filings made in the first quarter.

There’s no doubt, however, that Buffett likes HP’s valuation. Its shares are currently trading at 7.8 times expected earnings. This is well below the information technology sector’s PER of 22.4.

Are they purchased?

Regular investors shouldn’t automatically copy Buffett and buy every stock Berkshire buys. For example, I’m not sold on HP’s outlook. The company’s revenue growth is not very impressive. HP is facing particular headwinds with its printer business, which was once one of its brightest spots.

I have mixed feelings about GM. High inflation and supply chain issues could continue to pose problems for the company in the short term. The United States could also face a recession. CEO Barra acknowledged in the company’s second-quarter earnings call that plans are underway to address “multiple downside scenarios” with the overall economy.

On the other hand, I suspect GM could perform much better in the long run than it has in recent years. Growing consumer adoption of electric vehicles, combined with the company’s commitment to electric vehicles, could well make the stock a winner for patient investors. I’d like to see what’s going on with the economy, though, before I consider buying GM.

There’s a totally different dynamic for Occidental. My hunch is that oil and gas prices will remain high and could rise by the end of the year. Although the company anticipates a softer second half of 2022, it should still be strong compared to the same period in previous years.

I think Occidental stock could be a buy for investors focusing on the short term. However, the general shift away from fossil fuels should not lose momentum. Occidental might not be as good of a choice later this decade.

Keith Speights holds positions in Berkshire Hathaway (B shares). The Motley Fool holds positions and recommends Berkshire Hathaway (B shares) and HP. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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