On Feb. 26, Warren Buffett issued his annual letter to shareholders of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), which is up 10.6% year-to-date and at record highs. Wall Street pays close attention when the investing legend makes changes to his portfolio. Therefore, today’s article introduces seven Warren Buffett value stocks.
The “Oracle of Omaha” has an astonishing track record. Buffett’s six-decades of value investing success has created more than $700 billion in shareholder value, with an average annual return of 20%, since taking over as CEO in 1965.
After the recent pullback in the stock market, now could be the perfect time to invest in certain Warren Buffett value stocks. A review of Berkshire Hathaway’s most recent 13F filing reveals several shares that stand out as potential winners in the rest of the year.
Berkshire Hathaway ended the fourth quarter as a net seller of equities, pulling back on bullish bets, particularly in the healthcare and financial sectors. While Warren Buffett highlighted the lack of bargains, he nonetheless bought shares in Activision Blizzard (NASDAQ:ATVI) and Nu (NYSE:NU).
With that information, here are seven value stocks that could gain traction in 2022:
- Apple (NASDAQ:AAPL)
- Bank of America (NYSE:BAC)
- General Motors (NYSE:GM)
- Kraft Heinz (NASDAQ:KHC)
- Kroger (NYSE:KR)
- Nu (NYSE:NU)
- Verizon Communications (NYSE:VZ)
Value Stocks: Apple (AAPL)
52-week range: $118.79 – $182.94
Dividend Yield: 0.54%
Tech darling Apple has built an iconic brand focusing on mobile communication and media devices. The company boasts a 22% share of the global smartphone market. Buffett’s team holds a 5.4% stake in Apple, and close to half of the portfolio is held in the tech name.
The consumer technology giant released first-quarter FY22 results on Jan. 27. It reported record revenues of $123.9 billion, up 11% year-over-year (YOY). Net income came in at $34.6 billion, or $2.10 per diluted share, up from $28.8 billion a year ago. Cash and equivalents ended the quarter at $38.6 billion.
In 2021, Apple generated $192 billion in revenue from its iPhone segment, representing a 39% YOY increase. The company has also developed a thriving services business around its hardware that offers even more lucrative margins.
Meanwhile, Q1 revenues for the services segment soared 24% YOY to $19.5 billion. Analysts anticipate a modest 8% top-line growth in the 2022 fiscal year.
Apple just wrapped up its first product event of the year on March 8. It focused on a new more affordable iPhone SE, an update to the iPad Air, and its latest, most powerful Mac chip, the M1 Ultra, which will make its debut in the new Mac Studio computer.
AAPL stock currently hovers around $153 territory, up 27% over the past year. Shares are trading at 27.5 times forward earnings and 7.3 times trailing sales. While still not necessarily cheap on a fundamental basis, the stock offers much better value now, after dropping 13% YTD. The 12-month median price forecast for Apple is at $192.
Bank of America (BAC)
52-week range: $36.51 – $50.11
Dividend yield: 2.08%
Charlotte, North Carolina-based Bank of America is one of the largest financial institutions stateside. Berkshire’s stake in the company accounts for almost 14% of its total portfolio value.
Bank of America released Q4 2021 results on Jan. 19. Revenue grew 10% YOY to $22.1 billion. Net income surged 28% YOY to $7 billion, or 82 cents per diluted share, up from $5.5 billion in the prior-year quarter.
Like other financial names, Bank of America is highly sensitive to interest rates. Given the anticipated interest rate hikes, the bank is well-positioned for expanding its income from interest on variable-rate loans. Q4 operating results suggest that a 100-basis-point rise in the interest rate yield curve would lead to roughly an increase in net interest income of $6.5 billion.
BAC stock hovers at $41 territory, down almost 7% year-to-date (YTD). Nevertheless, shares look reasonably priced at 14 times forward earnings and 4.3 times trailing sales. Meanwhile, the 12-month median price forecast for BAC stock stands at $51.
Value Stocks: General Motors (GM)
52-week range: $39.75 – $67.21
General Motors is a leading American automaker that has also been expanding into electric vehicles (EVs). For instance, last year, GM pledged to invest $35 billion through 2025 in EVs, autonomous vehicles, and battery facilities.
Management also anticipates an annual manufacturing capacity growth of more than 1 million EVs. In addition, the automaker secured more than 110,000 initial reservation deposits of $100 for its new pickup truck, the Chevrolet Silverado EV, expected to launch in 2023.
GM released Q4 2021 results on Feb. 1. Revenue declined 10% YOY to $33.6 billion. Net income came in at $1.74 billion, or $1.16 per diluted share. In the prior-year quarter, net income was $2.85 billion.
China remains a key growth driver for General Motors. The automaker has delivered 2.9 million vehicles per year in China for the past two years.
GM shares trade around $42, down 29% YTD. After the most recent decline, shares trade for a rock-bottom valuation of just 6.7 times forward earnings and 0.55 times trailing sales. The 12-month median price forecast for General Motors stock is at $75.
Kraft Heinz (KHC)
52-week range: $32.78 – $44.95
Dividend Yield: 4.28%
Pittsburgh, Pennsylvania-based Kraft Heinz is the third-largest food and beverage company worldwide. It is also Berkshire’s fifth-largest stock investment with roughly $12 billion market value.
Management released Q4 2021 results on Feb. 16. Due to acquisitions and divestitures, net revenue declined 3.3% YOY to $6.71 billion. As a result, net loss came in at $257 million, or 21 cents loss per diluted share, compared to a net income of $1.03 billion a year ago. Cash and equivalents ended the period at $3.5 billion.
Kraft recently announced it increased prices by 3.8% in the fourth quarter to offset rising raw materials and transportation costs. As a result, margins in 2021 surpassed pre-pandemic levels two years ago. For 2022, management forecasts low-single-digit YOY growth in organic net sales.
KHC stock hovers slightly below $38 territory, up around 6% YTD. Shares have a reasonable valuation at 15.2 times forward earnings and 1.9 times trailing sales. Meanwhile, the 12-month median price forecast for Kraft Heinz stock stands at $40.
Value Stocks: Kroger (KR)
52-week range: $34.52 – $62.58
Dividend yield: 1.50%
Cincinnati, Ohio-based Kroger operates roughly 2,750 retail food stores and 1,600 gas stations under several banners. With over 61 million shares, Berkshire Hathaway is its third-largest stakeholder.
The retailer released Q4 2021 results on March 3. Revenue increased 3.7% YOY to $33 billion. Investors were delighted that the company generated a net income of $566 million, or 76 cents per share, compared to a net loss of $77 million in the prior-year quarter. Cash and equivalents ended the period at $1.8 billion.
Kroger has developed an integrated sourcing platform to safeguard its operations from rising inflation and supply chain issues. To that effect, it produces a large number of products without depending on third-party suppliers. As a result, Q4 adjusted operating profit grew 21% YOY to $1 billion.
Management has a long-term goal of generating 8% – 11% annual shareholder returns after factoring in the dividend payment. Kroger stock trades around $55, up 56% over the past year. Shares look relatively inexpensive at 13.6 times forward earnings and 0.3 times trailing sales. The 12-month median price forecast for KR stock is at $55.
52-week range: $5.55 – $12.24
Financial technology (fintech) name Nu provides digital banking services to 54 million customers in Latin America. It offers credit and debit cards as well as provides mobile payment solutions. The company went public in 2021, and Berkshire Hathaway invested in the young fintech group $500 million.
Management released Q4 2021 results on Feb. 22. Revenue surged 224% YOY to $636 million, and adjusted net income came in at $3.2 million. In 2021, Nu generated an adjusted net income of $6.6 million compared to an adjusted net loss of $26.8 million in 2020. The company gained 5.8 million customers during the quarter, up 62% YOY. Deposits soared 86% YOY to $9.7 billion.
Given Latin America’s population of 652 million people, the fintech company boasts significant growth potential. Nu is targeting individuals who have been unable to access the banking system as well as a younger demographic more inclined to adopt new technology. Management sees its total addressable market to be worth $269 billion by 2025.
NU stock is priced at $6, down about 37% YTD. Nevertheless, shares still trade at a lofty valuation of 10.7 times trailing sales. Meanwhile, the 12-month median price forecast for Nu Holdings stock stands at $12.
Value Stocks: Verizon Communications (VZ)
52-week range: $49.69 – $59.85
Dividend Yield: 4.83%
Our last stock is Verizon, the largest wireless service provider stateside. It has roughly 91 million postpaid and 4 million prepaid customers. Verizon shares currently account for around 3% of total assets in Berkshire’s portfolio.
The telecom group announced Q4 2021 results on Jan. 25. Revenue declined 1.8% YOY to $34.1 billion. Adjusting for the sale of Verizon Media, operating revenue grew 4.8% YOY. Net income came in at $4.7 billion, or $1.11 per diluted share, relatively flat YOY.
Verizon is a solid play on the accelerated adoption of 5G. The company recently rolled out the C-band 5G network, where it aims to reach a coverage of 100 million Americans.
VZ trades slightly below $54, up almost 2% YTD. Its hefty 4.7% dividend yield makes this stock an attractive pick for income investors.
Shares seem to be significantly undervalued at only 10 times forward earnings and 1.7 times trailing sales. Meanwhile, the 12-month median price forecast for Verizon is at $58.50.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.