A cornerstone strategy of renowned value investor Warren Buffett is to buy stocks at a price lower than their intrinsic value. This concept helps determine the opportune moment a stock is considered “inexpensive” and poised for further growth. Given the subjective nature of deeming something undervalued and the broad array of available stock picks, it’s common to find cheap stocks. Thus, those out on the hunt for solid prospects at a lower cost have continuous opportunities.

However, identifying cheap stocks can prove challenging. Small companies with low share prices generally do not attract institutional investors – those with substantial capital – because acquiring a meaningful stake is difficult without impacting the underlying share price. Another issue is that many cheap stocks merit their valuation for valid reasons. But this does not imply traders have no prospects to uncover cheap stocks. After all, Warren Buffett could still become a billionaire by acquiring cheap stocks.

Different approaches to evaluating whether a stock is cheap or expensive often rely on a trader’s objectives. However, some standard metrics virtually all investors employ to narrow the search for that catch include identifying shares with low price-to-earnings (P/E) ratios and investigating the company’s performance more deeply.

DaVita HealthCare (DVA)

Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRAK-B) portfolio includes shares of DaVita (NYSE:DVA), a company operating dialysis clinics across the United States. DaVita trades on a forward P/E ratio of approximately 1.11x when divided by its growth rate (PEG ratio), considered a cheap stock, given its projected annual EPS growth rate of around 11%.

The company has consistently delivered stable financial results in recent years, with earnings meeting or exceeding expectations. Management also expects revenues to increase steadily, underpinned by the ongoing growth in the prevalence of kidney disease among the U.S. population. Data indicates chronic kidney disease is now the fastest-growing major health condition, presenting a substantial addressable market for DaVita’s services.

There are concerns regarding the current valuation of DaVita, given that investors are considering the potential future impact of weight-loss medications lowering the incidence of kidney disease. Any material effect on DaVita from such a medical advancement will likely only be realized many years from now. In the interim period, however, the company retains scope for continued expansion, suggesting the present cheap stock price may not fully reflect DaVita’s short- to medium-term growth potential.

Altria Group (MO)

While the tobacco industry has faced challenges recently, Altria (NYSE:MO) offers potential interest from a purely financial perspective.

The stock currently appears to be a good value for income investors when trading on a PE ratio of 8.8x and a substantial dividend yield of almost 10%. Despite falling volumes amidst tighter anti-smoking regulations, Altria reports stable profits and maintains solid financials, making it a decent cheap stock.

The company has focused on transitioning its business from traditional burnt tobacco products to reduced-risk alternatives. The strategy is intended to create sustainable revenue streams and ensure a more stable future growth. If successful, it could help Altria regain some investors’ confidence as it navigates societal and regulatory changes within the sector.

For more hard-headed investors focused on fundamentals, Altria’s defensive approach and plans to transition suggest it may be worth a second look under the hood at current price levels. The cheap stock could deliver attractive returns through dividends and share price growth as the transformation progresses. All it needs is for management execution to remain strong.​

StoneCo (STNE)

Before the pandemic, Brazilian financial technology firm StoneCo (NASDAQ:STNE) encountered difficulties after extending credit facilities to small and medium-sized enterprises (SMEs) within the country’s loosely regulated financial sector. This led to significant losses as the pandemic began, primarily due to poor debt recoverability from struggling companies.

However, StoneCo has since rectified issues in its credit division and has shifted its focus towards transaction processing solutions for SMEs through its digital platform. The strategic pivot resulted in an earnings increase of 302% in the third quarter of 2023.

Analysts forecast a further rise of around 107% in profits for the current period, attributed to optimism around its refined operations amidst Brazil’s gradually stabilizing economic landscape.

On the date of publication, Stavros Tousios 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.