Warren Buffett is not a fan of portfolio diversification. He once indicated it meant that someone didn’t know what they were doing. “Diversification is a protection against ignorance,” he wrote to shareholders.

Of course, Buffett’s Berkshire Hathaway (NYSE:BRK-A, BRK-B) owns dozens of companies, though that’s more a result of its size than breaking Buffett’s rule. He would like to own fewer companies but deploying hundreds of billions of dollars requires buying more stocks.

Still, for the average investor looking to spread out his risk, diversification is a useful tool. Two dozen stocks or so, spread out over several industries, should provide a diverse portfolio without becoming your own mini-index. When you start owning dozens and dozens of stocks, you may as well just buy the S&P 500 and be done with it.

However, investors can follow Buffett’s value investing philosophy. Buying great companies at good prices offers the best chance for long-term wealth creation. That’s why investors should consider these three value stocks for diversification opportunities. They are terrific businesses with growth potential for many years to come.

Polaris Industries (PII)

Powersports vehicle manufacturer Polaris Industries (NYSE:PII) should be the first stock to buy. Its stock was crushed by the high inflation, high interest rate environment the government saddled us with. PII shares are down 38% over the last three years as constrained consumers failed to purchase many ATVs, snowmobiles, motorcycles or boats.

Second-quarter results last month saw a 12% drop in sales to just under $2 billion and a 43% compression in profits of $1.38 per share. Polaris now estimates full-year revenue of $7.2 billion to $7.4 billion, a 17% to 20% plunge compared to its previous outlook of just a 5% to 7% decline. Earnings are worse, with a 56% to 62% drop versus a 10% to 15% drop-off. While the dramatic change is due to industry conditions because of the macroeconomic situation, that is little comfort to shareholders.

However, inflation has eased, and we may get those promised interest rate cuts sooner rather than later. The market may reverse faster than expected. Polaris stock is up 12% off its lows, and it remains the industry leader in several categories by a healthy margin. 

Polaris Industries has a reputation as an industry innovator and a manufacturer of quality vehicles. Patient investors can receive some solace from its dividend that yields 3.3% annually and that it has raised for 29 straight years making the stock a Dividend Aristocrat. 

British American Tobacco (BTI)

Global cigarette giant British American Tobacco (NYSE:BTI) has become a leader in reduced-risk tobacco products. With U.S. smoking in a secular decline, and global rates falling by about 5% annually, British American has sought out next-generation products for future growth.

Its Vuse brand of heated tobacco devices is the leading electronic cigarette with a 40% share of the market, according to Nielsen. Second place Juul Labs has fallen far back to a 25% share. Third place NJOY, owned by Altria (NYSE:MO), has a little over 3% of the market.

NJOY, though, was recently granted approval to sell a menthol e-cig. It was a major reversal by the regulator, as it was previously poised to ban menthol cigarettes. The FDA also just approved BAT’s Vuse Alto e-cig for sale in the U.S., albeit only in tobacco flavor. 

Cigarettes, though, still represent the lion’s share of BTI’s revenue, or more than 80% of the total. Because of price inelasticity, or the ability of the tobacco stock to raise prices without losing customers, British American remains highly profitable. 

BTI stock is up 22% in 2024 but still trades at 7 times next year’s earnings and a bargain-basement 7x free cash flow. It’s a value stock for diversification within your portfolio.

Campbell Soup (CPB)

Soup maker Campbell Soup (NYSE:CPB) is the third value stock to buy. While the mature soup industry won’t be seeing the sort of growth rates anymore that made Campbell a household name, it is a consumer staple that the company owns the market with.

More promising for future growth is the shift Campbell made into the snacks business with its 2018 acquisition of Snyder-Lance, a popular maker of pretzels and other salty and savory snacks. Campbell now holds a 20% share of the market, putting it within striking distance of Mondelez International (NASDAQ:MDLZ) at 34% and Kellanova (NYSE:K) at 27%, according to Euromonitor.

In specific snack categories, however, Campbell is the undisputed top dog. Pretzels, for instance, holds a 41% share of the market. Its next closest rival is Hershey (NYSE:HSY) with an 11% share followed distantly by PepsiCo (NASDAQ:PEP) at 7%.

Considering that 43% of Campbell Soup’s sales now come from its snacks division (soup represents 30% of sales), this transformed company has a future of growth ahead of it. CPB stock is up 14% year-to-date and trades at 15 times next year’s earnings estimates. It makes the soup company (or maybe it’s the pretzel king) a value stock for diversification.

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

On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.