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Even the best of us make mistakes or dive into an investment too early, which explains the concept of Warren Buffett stocks trading at discount. Though investors tend to hang on every word that comes out of the “Oracle of Omaha’s” mouth, he has never been one to attempt to time the market with the precision of a laser-guided bomb. Instead, Buffett emphasizes playing the long game.
Indeed, Buffett once advised that the “stock market is designed to transfer money from the active to the patient.” At the same time, everyone loves a good discount. And although no one is really enjoying the uncertainty that present economic conditions have imposed, they have also enabled Warren Buffett stocks trading at discount.
Essentially, the strategy is as follows: based on the holdings of Buffett’s multinational conglomerate Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), investors can identify certain companies trading at a relative discount that are also fundamentally relevant. In other words, these Warren Buffett stocks trading at discount likely won’t be deflated for long.Ticker Company Price KO Coca-Cola $64.13 MA Mastercard $350.21 HPQ HP $32.81 PARA Paramount Global $24.25 NEM Newmont $45.49 CE Celanese $119.09 RH RH $270.32
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If you follow the Oracle’s money advice, you’ll know that he has quite a sweet tooth. Indeed, the man is fond of Coca-Cola (NYSE:KO), which through Berkshire Hathaway owns about 10% of the soft-drink giant. For curious readers, Buffett apparently craves Cherry Coke.
Thanks to the troubles of the economy, KO is also one of the Warren Buffett stocks trading at discount. At the closing bell of July 22, KO found itself down 1.6% over the trailing five days. In the trailing month, shares are down half-a-percent below parity.
Is this the greatest discount ever? Not even close. However, what makes the company compelling is its fundamentals. First, the cynical argument: intake of poor quality elements increase during recession, which bodes favorably for the soft-drink king. Second, Coca-Cola features robust profitability metrics, with a net margin of 25.7% well exceeding the median 5.35% for the beverage industry.
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Another intriguing and cynical name among Warren Buffett stocks trading at discount is Mastercard (NYSE:MA). On a year-to-date (or YTD) basis, MA stock is down about 3%. To be fair, over the past month, shares have swung up more than 6%, suggesting rising momentum. Therefore, this deal might not last indefinitely.
Looking at outside factors, what’s particularly “appealing” about Mastercard is inflation. True, the erosion of currency strength — which equates to about 13 cents on the dollar — naturally hurts spending. On the other hand, with prices of virtually everything going up, households need to make their dollars stretch. Often times, credit cards are the only means available (aside from other drastic alternatives).
Like Coca-Cola, Mastercard also features excellent profitability metrics, something that the Oracle no doubt appreciates. For instance, the financial services giant has an operating margin of 55.3%, far better than the industry median of 16.9%.
At first glance, acquiring PC and printer manufacturer HP (NYSE:HPQ) doesn’t seem to make a whole lot of sense — even for Warren Buffett stocks trading at discount. Famously, the Oracle of Omaha wasn’t so prescient with IBM (NYSE:IBM), a somewhat similar company that held onto its legacy businesses a bit too long. Eventually, Buffett gave up on IBM.
However, he apparently sees a different situation with HP. For one thing, the move is a classic Buffett play, with the underlying company featuring a robust mix of strengths in the balance sheet and high profitability metrics relative to their industry norms. Notably, HP’s return on assets is 16.8%, ranked 95% better than companies in the hardware sector.
Another factor to consider is the long game. Again, Buffett is a man who emphasizes patience. And over time, HPQ could turn out to be a savvy investment. Of course, right, HPQ stock is down more than 13% YTD. However, there is plenty of room to run over the long term.
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While the entertainment arena has been a messy affair this year, that didn’t stop the Oracle via Berkshire Hathaway to acquire about $2.6 billion in Paramount Global (NASDAQ:PARA). Unfortunately, the company hasn’t been a stronger performer, with PARA stock down about 20% YTD. Nevertheless, for the risk takers, PARA stocks appears to be one of the Warren Buffett stocks trading at discount.
Mainly, Paramount features a mix of an extensive library of streaming content and a compelling sports programming portfolio. In other words, Paramount gives customers significant bang for their buck, which is why some analysts believe it’s one of the few platforms making the transition to streaming that can be successful in the long run. After all, we’re talking about one of the most competitive business segments around.
On the financial front, against a basket of valuation metrics, PARA stock is considered modestly undervalued. Like many of the relevant Warren Buffett stocks trading at discount, Paramount enjoys strong profitability metrics; in particular, its net margin of 14.3% ranks higher than nearly 84% of competitors in the diversified media space.
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If you know anything about the Oracle, you know that he loves his sweets and he absolutely hates gold. Indeed, the man has been very vocal about his disdain for the yellow metal, declaring that it has little to no value. Specifically, Buffett zeroes in on its lack of usefulness. Once, he stated about gold, “It doesn’t do anything but sit there and look at you.”
Still, mining giant Newmont (NYSE:NEM) is therefore one of the more intriguing ideas among Warren Buffett stocks trading at discount. To be clear, NEM stock is not a direct holding of Berkshire Hathaway. Rather, Berkshire acquired the insurance company General Re, through which it owns the holdings of specialty investment service New England Asset Management (or NEAM).
Since NEAM then owns Newmont, it allows Buffett to benefit from the precious metals sector, even if he’s not enamored with the sector. With inflation soaring through the roof, however, NEM stock could eventually recover, making for a potentially lucrative discount.
While everyone loves piling into the individual players that comprise innovative sectors such as electric vehicles (or EVs) and automated transportation, it’s incredibly difficult to predict which brand will ultimately win out in the commercial market. However, what all innovations need is access to critical chemicals and commodities, which is where Celanese (NYSE:CE) enters the frame.
A specialist in the field of differentiated chemistry solutions, Celanese represents the stagehands that help the top thespians put on a great show. Furthermore, the company has relevancies across several sectors, both pioneering and long established. Therefore, CE stock is like selling tickets to the game instead of betting on the spread.
However, Wall Street doesn’t see it that way, which explains why CE stock is down almost 30% YTD. Still, this also makes it an interesting name among Warren Buffett stocks trading at discount. With a solid balance sheet and excellent profitability metrics, CE is a significantly undervalued investment.
I’m going to be straight up about upscale home-furnishings firm RH (NYSE:RH) by letting you know that I don’t think it’s a wise investment. With turmoil in the housing market along with devastating inflation, I’m in the camp that real estate prices will decline first before they swing higher. Nevertheless, the course here is Warren Buffett stocks trading at discount.
Sure enough, the Oracle believes in RH stock, even with shares down almost about 50% YTD. Perhaps it’s the patriotic side talking, but early last year, Buffett warned investors to never bet against America. Specifically, in his annual letter to Berkshire Hathaway shareholders in 2021, Buffett wrote, “In its brief 232 years of existence … there has been no incubator for unleashing human potential like America.”
Moreover, buying RH stock fits in with his general framework of acquiring good companies that happen to be going through rough circumstances. And despite latest troubles, RH stock commands a decent balance sheet with strong profitability metrics.
Plus, if he believes in it, who are we mere mortals to argue?
On the date of publication, Josh Enomoto 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.
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