If you're looking for a delicious food to prepare, look at a famous chef's favorite recipes. If you're looking for a great book to read, check out an outstanding author's recommended books list. And if you're looking for top stocks to buy, examine the stocks owned by a legendary investor.
No one fits the bill of the last example better than Warren Buffett. All of the stocks he owns can be easily found in Berkshire Hathaway's regulatory filings. As you might expect given Buffett's investing philosophy, there are some bargains in the group. Here are three absurdly cheap Buffett stocks that are no-brainer buys right now.
1. Chevron
Buffett seems to be bullish about the oil and gas industry these days. Two of the three stocks he bought for Berkshire in the fourth quarter of 2023 were oil stocks. Berkshire has especially loaded up on Chevron(NYSE: CVX). It's the fifth-largest position in the conglomerate's portfolio.
Chevron's valuation hasn't been driven to sky-high levels as many stocks have in the new bull market. Its shares trade below 12.3 times forward earnings. By comparison, the forward earnings multiples for the S&P 500 index and the S&P 500 energy sector are 21.4 times and 13 times, respectively.
Why is Buffett buying Chevron stock? He hasn't given a public explanation behind his decision, but it's probably a good bet that the Oracle of Omaha foresees higher oil prices in the future. The long-term supply and demand dynamics of oil and gas should work in Chevron's favor.
There's also another key reason to buy Chevron -- its dividend. The company has increased its dividend payout for 37 consecutive years. Chevron's dividend yield is 4.2%, which means investors will be paid handsomely to wait for oil prices to rise.
2. Lennar
Lennar(NYSE: LEN) isn't one of the stocks Buffett has bought recently. Berkshire even exited its position in another homebuilder stock in the fourth quarter (D.R. Horton). However, I think there's still much to like about homebuilders, Lennar in particular.
Valuation ranks near the top of the list. Lennar has a low forward earnings multiple of 11.4 times. This low multiple is especially appealing because of the company's growth prospects.
The U.S. needs more houses. Real estate developer and investment company Hines estimates a shortage of around 3.2 million homes. That's great news for Lennar -- one of the largest homebuilders in the country.
Lennar could receive a boost from the Federal Reserve this year. In the Fed's latest meeting, officials indicated three interest rate cuts could be in store in 2024. Rate cuts would bring mortgage rates down and likely spur more new home starts.
3. Sumitomo
In his most recent letter to Berkshire Hathaway shareholders, Buffett discussed eight stocks that he expected to hold "indefinitely." Japanese trading house Sumitomo(OTC: SSUM.F)(OTC: SSUM.Y) was in the group, as were four of its peers.
Sumitomo is the most attractively valued of the five Japanese stocks in Berkshire's portfolio. Its shares trade at a little over 9 times trailing-12-month earnings.
Buffett likes Sumitomo for several reasons. It's highly diversified with investments in a wide range of industries. The company follows policies that are friendly to shareholders, including solid dividends and smart stock buybacks. Sumitomo's management doesn't pad its own compensation as some U.S. executives do.
This Japanese stock isn't likely to deliver explosive growth. However, I expect Sumitomo will be able to generate total returns that will make most investors happy. Buffett wouldn't view it as a forever stock if he didn't feel the same way.
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Keith Speights has positions in Berkshire Hathaway and Chevron. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, and Lennar. The Motley Fool has a disclosure policy.
