Buffett Buys on a Budget: The 3 Cheapest Stocks Held by Berkshire Hathaway


  • The Oracle of Omaha loves buying good companies at a great price, which makes these three cheap Buffett stocks a buy.
  • DaVita (DVA): One of the largest dialysis centers continues growing as the diabetes care market expands.
  • Occidental Petroleum (OXY): The oil stock is riding the wave of consolidation in the industry.
  • Kroger (KR): The largest supermarket pure-play is making its own acquisition attempt that will greatly expand its reach.
Cheap Buffett Stocks - Buffett Buys on a Budget: The 3 Cheapest Stocks Held by Berkshire Hathaway

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“Price is what you pay; value is what you get.” In 2008, Warren Buffett told Berkshire Hathaway (NYSE:BRK-A, BRK-B) shareholders that buying good businesses when they’re cheap was the quintessential way to amass wealth. “Whether we’re talking about socks or stocks,” he said, “I like buying quality merchandise when it is marked down.”

He knows a thing or two about that. Since taking over as CEO of Berkshire in 1965, the Oracle of Omaha has amassed an incredible 4.38 million percent return for investors for a compounded annual growth rate of 19.8%. In contrast, the S&P 500 has returned “just” 31,233%, or 10.2% annually.

Investors following in his footsteps might want to heed those sentiments when looking for cheap Buffett stocks to buy. Scouring Berkshire Hathaway’s holdings can turn up some discounted stocks on sale. Below are three companies that offer both great value and a good price.

DaVita (DVA)

A DaVita (DVA) kidney care clinic in St. Joseph, Missouri.
Source: APN Photography / Shutterstock.com

Despite doubling off the lows hit last October, dialysis treatment center DaVita (NYSE:DVA) remains an excellent stock to buy. It is one of the two largest dialysis centers in the U.S., generating 89% of its revenue and all its operating profits from dialysis. The company serves around 200,800 patients a year, giving it a 36% market share, just behind market leader Fresenius Medical Care (NYSE:FMS) at 37%.

DaVita continues to build on the momentum of its cost-containment program, which began last year. First-quarter revenue rose 6.5% year-over-year while operating expenses rose just 1%. That led to a 79% increase in net income of $306 million, or $2.65 per share, compared to $1.25 per share last year.

The worst possible thing now for DaVita could be the weight-loss treatments Wegovy and Zepbound. The wonder drugs are causing phenomenal weight loss in users, which could ultimately reduce the incidence of kidney disease and the need for dialysis. It’s a win for overweight people and diabetics but not so much for those treating them. That would still be a risk in the future, though.

At less than 14 times next year’s earnings, less than twice its sales, and going for 13 times the free cash flow (FCF) it generates, DaVita is a cheap Buffett stock that will deliver a lot of value for years.

Occidental Petroleum (OXY)

Person holding cellphone with logo of American company Occidental Petroleum Corp. (OXY) on screen in front of website. Focus on phone display. Unmodified photo.
Source: T. Schneider / Shutterstock.com

Buffett’s favorite oil stock Occidental Petroleum (NYSE:OXY) is expanding. After the oil and gas industry underwent a wave of consolidation, Occidental announced it would buy shale producer CrownRock for $12 billion. It makes the oil giant an even bigger player in the oil-rich Permian basin than it already was.

It is a fever that has gripped the players. Last year, Exxon Mobil (NYSE:XOM) announced it was buying Permian giant Pioneer Natural Resources, which triggered a series of oil companies to launch their own acquisitions. Occidental bought CrownRock, Diamondback Energy (NYSE:FANG) bought privately held Endeavor Energy Partners and ConocoPhillips (NYSE:COP) just announced it was buying Marathon Oil (NYSE:MRO).

Occidental, though, is gaining access to low break-even acreage in the region. The undeveloped assets are ready to be developed below $60 a barrel for West Texas Intermediate crude, which currently is $79 per barrel.

Occidental Petroleum trades at just 13 times earnings estimates and 11 times FCF, making it a great value stock to buy.

Kroger (KR)

A photo of a Kroger Co (KR) sign on a brick wall.
Source: Shutterstock

Kroger is the last cheap Buffett stock to buy (NYSE:KR). The largest supermarket pure play, with over 2,700, is in the midst of its acquisition attempt. The grocery store chain is attempting to buy rival Albertsons (NYSE:ACI) but, like the oil giants, is running into interference from the FTC.

The regulatory agency’s blanket opposition to any big merger deal could threaten Kroger’s near-term growth opportunities despite the supermarket giant offering significant concessions to make the deal happen. The FTC does not understand the very real competitive threats grocery stores face. There is no lack of discount grocers consumers can choose from, including Walmart (NYSE:WMT), Costco (NASDAQ:COST), Aldi and Lidl. However, Kroger’s stock will only be a temporary setback for the premier supermarket chain if the merger fails.

Even after rising 24% from recent lows, Kroger stock still trades at a good price. It goes for 11 times earnings, a tiny fraction of sales, and 13 times FCF. If shares fell due to the FTC blocking its acquisition, that would only make them even better.

On the date of publication, Rich Duprey held a LONG position in XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/buffett-buys-on-a-budget-the-3-cheapest-stocks-held-by-berkshire-hathaway/.

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