Investors who are fans of Warren Buffett may want to look at his Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) holdings. The Oracle of Omaha owns companies spanning industries from tech to oil and gas to finance and banking. But which ones are the best value? Let’s take a look at seven of the best undervalued Warren Buffett stocks to buy now — before they rebound and it’s too late.
Undervalued Warren Buffett Stocks: Apple (AAPL)
Apple (NASDAQ:AAPL) posted a record revenue of $83 billion in the third quarter. It earned $1.20 per diluted share. In the quarter, Apple’s product and iPhone unit accounted for $63.36 billion and $40.67 billion in revenue, respectively. Just as PC sales fell in the quarter, so too did Apple’s Mac revenue. Yet that is partly due to supply constraints. Revenue fell from $8.24 billion to $7.38 billion.
Apple expects gross margins of 41.5% to 42.5%. Foreign exchange and product mix are reasons for the decline. Better leverage will offset those headwinds. Inflation is hurting the economy, but Apple did not notice any obvious evidence. For example, the company reported strong iPhone sales. Mac and iPad sales were constrained by supply.
In the service sector, the macroeconomic environment hurt digital advertising. Overall, Apple overcame those challenges by posting strong growth. The company reported record growth geographically and across every product category. Customers are more engaged with Apple. This will increase the company’s profitability.
Amazon (NASDAQ:AMZN) already formed a bottom in the low $105 range. AMZN stock has more room to rebound. In the second quarter, the e-commerce firm posted revenue growth of 7.2% year-over-year (YOY) to $121.2 billion. It lost 20 cents a share.
Amazon’s revenue is growing below the rate of inflation. Still, its revenue excludes Prime Day sales, which occurred on July 12-13, 2022. Last year’s results included Prime Day.
Amazon increased its spending by around 40% on warehouses and transportation capacity. When they open up in 2023 and beyond, the company will ship more product volume, increasing its revenue. Operating efficiency will increase for its cloud service, AWS. For example, AWS costs will include depreciation in future quarters.
Amazon has new investments and sales force growth across more regions. This increases its infrastructure efficiency. In addition, customers will sign extended contracts at favorable prices. Investors will benefit from more predictable revenue from the AWS unit.
Undervalued Warren Buffett Stocks: General Motors (GM)
General Motors (NYSE:GM) reported Q2 earnings per share of $1.14. Revenue grew by 4.6% YOY to $35.76 billion. Supply chain disruptions hurt GM, especially in June 2022. This temporary blip delayed GM stock from rebounding.
GM expects a net income of up to $11.2 billion in the fiscal year 2022. It will earn up to $7.50 (dilution-adjusted).
Chief Financial Officer Paul Jacobson said that inflation and chip shortages hurt volumes and its product mix in the quarter. He is confident that GM will make up for that volume in the back half of the year. To adjust for a downturn, GM will pause hiring. But it will support the electric vehicle (EV) strategy by adding critical skill hires. As GM removes billions in unnecessary discretionary spending, shareholders should expect efficiencies to pay off.
GM will improve its product mix next. For example, it has a new refresh of full-sized trucks. Its SUVs will have strong demand after GM introduced enhancements. Strong demand for vehicles will let GM sell at higher prices. This could lift its profits.
Chevron (NYSE:CVX) posted record-breaking net earnings of $11.62 billion in the last quarter. The EPS of $5.95 is nearly quadruple over last year. The company enjoyed cash flow from operations of $13.8 billion. Free cash flow topped $10.6 billion.
Chevron historically grew its dividend for 35 consecutive years. It increased rates by 6% earlier this year. With its strong FCF, the company may increase its investments in traditional and new energy. In the first half of the year, investments rose by 80% compared to last year. In addition, Chevron plans to maintain its strong balance sheet. For five quarters in a row, it has paid down debt. Its net debt ratio of 8% is below its mid-cycle guidance of 20% to 25%.
Chevron will increase shareholder returns by buying back $15 billion a stock at an annual rate. This will continue over the next few years, regardless of oil prices potentially falling. Investors should hold CVX stock through the commodity cycle.
Undervalued Warren Buffett Stocks: Occidental Petroleum (OXY)
OXY stock is nowhere near a peak. The stock said last quarter that it would repay another $5 billion in debt. It already paid back $3.6 billion in debt. Once it achieves the $5 billion debt reduction, it will buy back $3 billion in shares. Investors may infer that Buffet likes Occidental’s shareholder return framework.
The company is cautious about the energy market conditions ahead. It expects a slight dampening for the rest of the year. Long-term investors may use any share price weakness to accumulate a position. Long-term fundamentals are supportive of higher margins.
Occidental will outperform thanks to strong results from its midstream and marketing units. It reported higher margins from its gas processing and sulfur sales. Furthermore, Occidental optimized its gas transportation activity in the Permian and Rockies.
Bank of America (BAC)
Bank of America (NYSE:BAC) posted revenue growing by 5.7% YOY to $22.7 billion. It also declared a quarterly cash dividend of 22 cents a share. The penny increase is a 5% hike. The small dividend raise is restricted by regulatory requirements and the Comprehensive Capital Analysis and Review (CCAR) Quantitative Results.
Ahead of BAC stock rebounding, investors should buy the stock. By next year, the bank will resume its 3-cent per share dividend increase. It will also buy back more shares.
The company increased its customer base by adding a million new checking accounts YOY. This is an ideal customer addition, because the product is stable. Customers rarely close the product. As interest rates rise, customers are even less likely to close their accounts.
The higher interest rates will add $2 billion to Bank of America’s net interest income. That is $900 million to $1 billion this quarter and again in the next quarter. Since operating costs are consistent at $15 billion to $15.5 billion, the bank will report higher margins.
Undervalued Warren Buffett Stocks: VeriSign (VRSN)
VeriSign (NASDAQ:VRSN) manages domain name registrations. Its mission is to enable the world to connect online. In the second quarter, the company achieved a milestone of 25 years of 100% availability in the dot-com and dot-net domain name resolution system.
In the second quarter, VeriSign posted revenue growth of 6.8% to $352 million. It earned $1.54 a share. Domain name registrations are trending lower. Investors should expect a fall after a pandemic-driven increase in registrations. Still, the company has favorable long-term trends. CEO James Bidzos said that new registrations are looking more similar to pre-pandemic levels.
VeriSign has a strong recurring revenue trend. It saw continued strong renewal rates for past renewed names. This rate is typically in the mid-80% range. Customers that registered during the pandemic are renewing their names. This will strengthen VeriSign’s core renewal business.
For five years, the company did not raise prices. After studying the market, it determined it could hike prices. The next price increase will take effect on Feb. 1, 2023.
On the date of publication, Chris Lau 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.