We all know that the Oracle of Omaha offers great investment advice so it stands to reason that undervalued Warren Buffett stocks may be one of the most compelling ideas to consider. Here’s what I like about this particular investment category.
First, it’s inevitable that in the wider financial publication space, you’re going to get a lot of systems and opinions. However, it’s difficult to know whether these advertised methodologies work only in the moment or will stand the test of time. With the Oracle, you’re dealing with multiple decades of proven results.
Second, Buffett clearly knows how to navigate both bull and bear markets. Everybody can pick winners when the major benchmarks are rising. However, the true gurus distinguish themselves by protecting portfolios during downcycles. Just look up the Oracle’s bio – he’s been around the block a few times.
Generally, you should never rely on any one person or source for your financial decisions. But if you had to go with someone, the Oracle is a darn good choice. Here are undervalued Warren Buffett stocks to consider.
Kraft Heinz (KHC)
A multinational food company, Kraft Heinz (NASDAQ:KHC) ranks among the most relevant ideas for undervalued Warren Buffett stocks. Basically, whether good economy or bad, people have to eat. Not only that, when conditions start to fade, people are obviously willing to cut discretionary items. They don’t have the luxury of scaling back on their calories.
While Kraft Heinz isn’t the most glamorous idea, it consistently delivers the goods. In the most recent fourth quarter, the company posted earnings per share of 78 cents, just pipping the consensus target of 77 cents. Further, it beat earnings targets in the past four quarters with an average surprise of 6.9%.
For the current fiscal year, analysts believe KHC will post revenue of $26.85 billion. In 2025, they anticipate sales of $27.36 billion. For context, 2023 saw the top line move to $26.64 billion.
Shares trade at 11.52X forward earnings, below the sector median 16.1X. That seem a good deal considering the analysts’ average price target of $38.21, implying 11% upside potential.
Diageo (DEO)
A British multinational alcoholic beverage company, Diageo (NYSE:DEO) operates from 132 sites around the world. Per its public profile, Diageo is a major distributor of Scotch whisky and other spirits. Its leading brands include Guinness, Smirnoff, Baileys liqueur, Captain Morgan rum, and Tanqueray and Gordon’s gin. Since the start of the year, DEO stock gained about 3%.
That said, DEO has been volatile over the past one-year period, losing almost 13% of equity value. Still, this red ink could translate to a long-term discounted opportunity. Keep in mind that the company posts a three-year revenue growth rate of 15.3%, above 76.26% of its peers. Also, the firm’s EBITDA growth rate during the same period stands at 16%, above the sector median 9.2%.
Despite this robust print, DEO trades at a modest forward earnings multiple of 16.16X. In contrast, the sector median comes in at almost 17.1X.
To be fair, the analyst consensus target is a hold. However, the most optimistic price target calls for $175, implying 18% upside potential. Thus, it’s worth consideration for those seeking undervalued Warren Buffett stocks.
Kroger (KR)
An easy idea among undervalued Warren Buffett stocks, grocery store giant Kroger (NYSE:KR) might not seem particularly enticing at the moment. Recently, the company is generating headlines for its salad products recall. Still, as I mentioned earlier, people have to eat. As a result, KR stock should benefit from the trade-down effect.
Under tough economic conditions, consumers will almost surely cut non-essential budget items. That means going out to eat will be gone in favor of cooking at home. With Kroger stores providing the ingredients at competitive prices, it’s going to benefit from consumers trading down their purchases. Sure enough, that performance has been reflected in the company’s earnings print.
In at least the past four quarters, the company has beaten per-share profitability estimates. The average surprise comes out to nearly 8%. Yet KR stock trades at a modest 12.61X forward earnings.
Overall, analysts rate shares a consensus moderate buy. The average price target of $58.27 implies 5% upside. However, the highest price target stands at $70, suggesting 26% growth potential.
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.