Seven value stocks Warren Buffett is loading up on before they rise

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), has a keen eye for value stocks that are poised for growth. In recent months, he has selectively increased positions in companies that he believes are undervalued and have significant upside. According to Berkshire Hathaway’s latest 13F filing, Buffett increased his ownership stakes in just five five in the second quarter of 2023. But given how quickly market conditions can change, some of the best Buffett stocks to buy now extend beyond recent purchases.

In this article, we take a closer look at seven stocks that the Oracle of Omaha has accumulated for what he expects to be strong growth. Specifically, we look at some of the five companies he added based on recent regulatory filings, along with a couple of stealth investments revealed by my research on his other portfolios. Although Buffett’s reputation is based on long-term investments, the stocks covered here also appear to be poised for immediate gains.

Of course, it is important to point out that even the best investors can be wrong about market movements. So we will analyze each choice carefully, including the likely investment thesis as well as the potential risks. Notably, what Buffett bought a few months ago is not necessarily a good buy right now, at least in my opinion. Let’s take a look at the following seven stocks that Warren Buffet owns right now.

Berkshire Hathaway (BRK-A, BRK-B)

Without question, Berkshire Hathaway stock is Warren Buffett’s favorite stock to buy, as he has consistently bought up shares of his own company. Berkshire Hathaway’s performance has been undeniable, and the proven company has continued to surpass 2023. In the second quarter alone, Berkshire bought back its own shares for over 1.4 billion dollars.

Buffett clearly sees Berkshire as undervalued and an attractive investment opportunity even at current levels. The conglomerate reported an incredible operating profit of $71.4 billion in the first half of 2023, demonstrating the earning power of Berkshire’s broad-based businesses such as Geico, BNSF Railway and its manufacturing, service and retail operations. Moreover, Berkshire’s $147 billion cash pile gives it an “elephant gun” to hunt down entire companies or other large investments at bargain prices. With Buffett at the helm, Berkshire Hathaway remains a long-term shuffling machine.

Capital One Financial (COF)

Capital One (NYSE: COF) is one of the five companies Warren Buffett increased his stake in during the second quarter of 2023, based on recent regulatory filings. He increased his position by more than 25 percent, making it among Berkshire’s top 25 holdings. I’m unsure if Buffett is fully bullish on this name, even given his current addition. However, I think this is a good long-term choice because of its cheap valuation. The share price has almost halved over the past two years and now trades at just eight times earnings.

Certainly, there are concerns about the banking and financial sector in general. But with the Federal Reserve showing a willingness to bail out banks earlier this year, I think those fears are a bit overblown. Capital One reported strong second quarter results, with estimates topping revenues. It is cutting costs aggressively to protect margins in a challenging environment. In addition, its consumer business remains robust, with closing loans and revenues increasing by 18 percent each year compared to the previous year. When macroeconomic uncertainty eventually subsides, the market may realize that Capital One is undervalued, providing upside for investors who buy at current prices.

Coca-Cola (KO)

Coca-Cola (NYSE: KO) is one of the most consistent Warren Buffett stocks (evidenced by its low beta), and while Berkshire Hathaway did not increase its position in KO stock this past quarter, Warren Buffett’s New England Asset Management did. This grocery company will continue to cash out and pay dividends, making it a good buy right now, even if it faces some short-term selling pressure. Coca-Cola reported strong results for the second quarter of 2023, with 11 percent organic revenue growth and earnings per share of 11 percent as well.

The company continues to gain market share globally and has pricing power even in the face of inflation. Coca-Cola also pays a dividend of around 3.3% and is less sensitive to economic downturns than other sectors. With its diversified portfolio of beverages and presence in 200 countries worldwide, Coca-Cola has what it takes to deliver stable returns regardless of market conditions. While not the most exciting stock, it is one of Buffett’s core holdings for good reason.

Sysco (SYY)

Sysco (NYSE: SYY) is another stock Warren Buffett’s NEAM has stockpiled that is poised for strong growth. His company expanded its position in this name by 15 percent. Sysco has lost almost 20 percent of its value from its peak and is now well below its pre-pandemic highs. Further short-term downside risks remain as inflation may continue to put pressure on margins.

But entering this stock at current levels is likely to lead to juicy long-term gains. Sysco is a world leader in food distribution, giving it economies of scale and pricing power that smaller rivals lack. The reopening of restaurants, hotels and other hospitality businesses that Sysco serves also provides a multi-year tailwind. Notably, the company has also reduced costs and improved efficiency.

This is reflected in the company’s latest results, where Sysco reported sales growth of more than 4% and earnings per share that beat estimates. Notably, the SYY share provides a dividend yield that is now also an attractive 3 percent. With that in mind, its dominance and marginal drivers make it one of the best Warren Buffet stocks to own over the long term.

JPMorgan Chase (JPM)

JPMorgan Chase (NYSE: JPM) is one of the top lending institutions globally. Rest assured, I am almost certain that this business will not go underwater, no matter what. JPMorgan has been one of the strongest financial stocks, which is why it is also one of Berkshire Hathaway’s holdings and one of the stocks that NEAM bought in its last reported quarter.

In the most recent quarter, JPMorgan Chase reported earnings per share of $4.75 on revenue of $41.31 billion, beating estimates. The company has produced stellar results this year, even in a challenging macroeconomic environment, thanks to strength across business lines, including investment banking, trade, consumer banking and more. Turnover increased by 34% compared to the same period last year.

JPMorgan Chase increased its full-year 2023 net interest income guidance to around USD 87 billion, driven by higher interest rates and slower deposit pricing than previously assumed. The bank raised its CET1 capital ratio to 13.8% and received approval for a lower stress capital buffer requirement of 2.9% from its fourth quarter of 2023. This will allow JPMorgan Chase to return more capital to shareholders.

While uncertainties remain around the future economic outlook, competition for deposits, and pending finalization of the Basel III regulations, JPMorgan Chase remains optimistic about creating continued excellence through a variety of conditions. It has an unparalleled competitive position and balance sheet. JPMorgan Chase is currently trading at around 10 times forward earnings, which is towards the lower end of its historical range.

Given its dominant position and ability to produce consistent returns across cycles, JPMorgan Chase stock appears to be attractively valued. This Buffett stock remains a long-term compounder to own. It’s definitely one of the best Warren Buffett stocks to buy right now.

D.R. Horton (DHI)

I believe that D.R. Horton (NYSE:DHI) stock offers significant upside, but it’s also quite risky right now because of its connection to the housing market. My personal rating here would be “hold” as it can make strong moves in either direction, given where the broader economy is going.

In the third quarter of 2023, D.R.. Horton generated $3.90 in earnings per share on revenues of $9.73 billion, which exceeded estimates. The company continues to see strong demand conditions, with consolidated net sales orders increasing by 10.7 percent compared to the previous year. D.R. Horton also increased gross margin and reduced build cycle times by over a month.

However, the housing market faces considerable uncertainty going forward. Rising mortgage rates have affected affordability and slowed the frenetic pace of demand in recent years. D.R. Horton has adapted by lowering prices and increasing incentives for buyers. But if demand were to fall more meaningfully, it would likely put pressure on profit margins for residential construction.

In contrast, D.R. Horton has a strong balance sheet with ample liquidity and low leverage. This gives it the flexibility to invest in growth and downturns better than its competitors. D.R. Horton also has industry-leading scale, geographic diversification and an efficient operating model that delivers industry-leading returns on capital.

With its wide moat, D.R.. Horton seems poised to continue gaining market share profitably despite fluctuations in the housing market. But this uncertainty merits caution until we have more clarity on the economy and the housing market. This makes DHI stock a “hold” for now.

Occidental Petroleum (OXY)

Likewise, Occidental Petroleum (NYSE: OXY) is also a bit speculative, but could skyrocket in the coming weeks. It all depends on the price of oil. Should the economy see the so-called ‘soft landing’ that economists believe is possible, we are likely to see elevated oil prices for quite some time. Conversely, a recession or economic downturn can mean at least 30% downside from here, in my opinion. But I still think this stock is a long-term buy because of the company’s oil reserves, as well as its impressive dividend.

In the second quarter of 2023, Occidental generated adjusted earnings per share of $0.68, with no expectations. However, total production beat the guidance by 42,000 BOE per day, as operational execution continued to hum. Occidental raised its full-year 2023 production outlook and generated over $1 billion in free cash flow, even with a planned maintenance shutdown.

Occidental also bought back $425 million of common stock in the second quarter and has now completed about 40 percent of its $3 billion repurchase program. It also redeemed an additional USD 520 million in preferred capital. Occidental believes it can sustain shareholder payouts above $4 per common share at an oil price of $75 per barrel or higher. Yet the shares are trading very cheaply at just seven times earnings. It’s not my first choice when it comes to Warren Buffett stocks, but the OG investor knows best!

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