A stock market rally is still underway, with the S&P 500 index rebounding in May. Now, this rally has mostly been led by high-growth tech stocks. However, some names with unique value are certainly garnering more attention. You know, the high cash flow producing companies with solid balance sheets that return capital to shareholders.
Investors want stability and seek more defensive positioning to balance some of the risks various high-growth stocks provide. Of course, you can always generate a higher upside by moving up the risk spectrum. However, not every investor is willing to do that right now.
Here are three value stocks to buy for a more defensive approach to the markets.
Berkshire Hathaway (BRK-A, BRK-B)
This year started well for Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), as the company reported a $11.22 billion operating profit. This was a 39% increase from 2023, indicating an optimistic outlook. Railroad earnings were marginally lower, but its energy business earnings nearly doubled in the last 12 months.
Moreover, Warren Buffett revealed a previously veiled $6.7 billion investment in Chubb, detailed in a recent SEC filing. This stake, concealed during accumulation, marks Buffett’s ongoing influence on investment trends. Chubb’s global operations, including notable underwriting for former President Trump, add intrigue to Berkshire’s latest move.
Trading now at a reasonable price-earnings ratio of 21.5 times, BRK-B stock offers great value. The market anticipates 23.3% annual earnings growth by 2029. This led to an upgrade to a Buy rating. Currently, the stock’s price target is at $490, showing consensus 18.2% upside from its current levels.
Occidental Petroleum (OXY)
Houston-based oil company Occidental Petroleum (NYSE:OXY) is among the leading hydrocarbon exploration and production companies in the market. It operates in North Africa, U.S. and the Middle East.
Occidental saw a $1 billion boost to annual free cash flow with oil for $70 per barrel. This deal led to a 22% dividend increase in early 2024. Moreover, CrownRock’s addition strengthened Occidental’s portfolio.
Last year, the company announced a partnership with Amazon (NASDAQ:AMZN) to deploy carbon capture technology. The market reacted positively to this collaboration, which boosted Amazon’s revenue by $150 million. The deal also diversifies Occidental’s revenue streams amid increasing demand for sustainability.
As the oil industry shifts towards eco-friendly practices, Occidental has emerged as a leading oil stock to buy. Investors should buy OXY stock for substantial gains in the long-run.
Bank of America (BAC)
Another key driver in Buffett’s portfolio is Bank of America (NYSE:BAC). The company stands out as one of his best banks, accumulating 13.2% of Berkshire Hathway. Last March, BAC offered stability amid sectoral stress from high interest rates. Despite challenges like a higher cost of capital, BofA’s forward-looking metrics suggest potential when rates decrease.
Bank of America’s investment banking fees were predicted by CEO Brian Moynihan to increase by 10-15% in Q2, rebounding after a prolonged industry downturn. Moynihan also anticipated low single-digit growth in trading revenue, driven by equities’ performance. Goldman Sachs’ President noted a slower recovery in equity capital markets than debt markets.
While digital assets attract attention, Bank of America doesn’t prioritize them due to lack of client demand. Instead, they focus on AI’s potential to streamline payments and improve customer experiences. Initiatives like Intelligent Receivables and extending AI assistant Erica to corporate clients showcase the company’s commitment to innovation.
On the date of publication, Chris MacDonald did not hold (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.
