During times of market volatility, many investors look to see which stocks Warren Buffett is buying. Spoiler alert, you won’t find him chasing the hottest AI stocks. Buffett is a value investor through thick and thin. With that in mind, I’ve put together a list of oversold Warren Buffett stocks to buy.
I get it. Buffett is an acquired taste, and some investors never acquire his style of investing. But love him or hate him, the Oracle of Omaha is unquestionably one of the most successful buy-and-hold investors of all time. Part of his success is due to finding stocks that offer great value.
Some of Buffett’s favorite companies are those that increase shareholder value through dividends and share buybacks. You’ll see several of those on this list. But this list of Warren Buffett stocks to buy is primarily focused on companies with a forward price-to-earnings (P/E) ratio that is below the current S&P average of around 18x. That means these stocks will be more likely to experience a price-multiple expansion as other stocks get priced lower.
Kraft Heinz (KHC)
Kraft Heinz (NYSE:KHC) is first up on this list of Warren Buffett stocks to buy. This is a consumer staples company in the middle of executing a turnaround strategy that focuses on emerging markets. The strategy seems to be working. In a so-so earnings report, the company reported an 8.5% expansion in international growth markets.
However, that growth is not showing up in the company’s stock price yet. KHC stock is down 17% in 2023. But price alone doesn’t mean a stock is overvalued. For that, you can look at the company’s price-to-earnings ratio. For Kraft Heinz the P/E ratio is 13x earnings and its forward price-to-earnings ratio is 11x. At a time when some of the “growthier” consumer staples stocks may be in line for a multiple contraction, KHC stock looks primed for an expansion.
Getting revalued could be the catalyst KHC stock needs to break above the range it’s been trading in for about two years. Analysts seem to believe in this scenario. Out of 21 analysts that have issued a rating on Kraft Heinz, eight gave it a “Strong Buy” rating. Kraft Heinz also offers a dividend with a juicy 4.72% yield.
D.R. Horton (DHI)
One of Buffett’s more surprising buys in 2023 has been his summer splurge on homebuilder stocks including D.R. Horton (NYSE:DHI). At a time when the rate on a 30-year fixed mortgage is approaching 8% in some parts of the country, and existing home inventory is at historic lows, it seems like an odd time to be investing in the home building trade.
But Buffett is known to play the long game. And with the great relocation underway, the need for new single- and multi-family homes has also never been greater.
Buffett bought shares of Lennar (NYSE:LEN) and NVR (NYSE:NVR). All three have attributes that appeal to Buffett. But I’ll give a slight nod to D.R. Horton. The company is undertaking a strategy to turn homes more quickly to help reduce inventory levels.
The company has an appealing forward P/E ratio of 8.8x. And out of 22 analysts that offer ratings, 13 have given DHI stock either a “Strong Buy” or “Buy.”
Kroger (KR)
Next up on this list of Warren Buffett stocks to buy is Kroger (NYSE:KR). The regional grocery chain operator is not a superstar in the “what have you done for me lately?” category. KR stock is up around 4.82% in 2023 but is still down about 5% in the last 12 months.
Chalk it up to sticky food price inflation. In 2021, this was a tailwind for the company as it could pass along increasing costs. That changed in 2022, and the company also saw its planned merger with Albertson’s (NYSE:ACI) being held up by regulators.
Still, as Kroger’s most recent earnings report showed, it continues to grow revenue and earnings year-over-year. The company has a loyal customer base. And since the company sells products that consumers need, that revenue is likely to continue.
Investors should also consider that the merger will be approved at some point. That will allow you to pay attention to an attractive forward P/E ratio of just 10.2x.
Johnson & Johnson (JNJ)
Warren Buffett loves his dividend stocks, and Johnson & Johnson (NYSE:JNJ) is dividend royalty. The healthcare conglomerate has increased its dividend for 62 consecutive years. That puts it in the elite class of stocks known as Dividend Kings.
It’s been a rough year for Johnson & Johnson, but it could be a case of short-term pain leading to long-term gains for patient investors. The company recently reached a settlement in its long-running talc lawsuit. The company will be paying the settlement out of earnings for several years. But in matters like this, the known is better than the unknown.
JNJ stock is also taking a hit as some investors enthusiastically sold shares to get a stake in the company’s consumer products spin-off Kenvue (NYSE:KVUE). But with that now behind it as well, investors can focus on the company’s remaining healthcare and pharmaceutical divisions.
Nevertheless, despite being down over 8.47% in 2023, JNJ stock is still up 21% over the last five years. When you add in its dividend which has a yield of 2.89%, you have a stock that’s helping investors keep up with inflation.
Occidental Petroleum (OXY)
Warren Buffett is known for investing in oil companies and I have two on this list. The first is Occidental Petroleum (NYSE:OXY), which Buffett made a big bet on in 2020. In 2023, he’s doubling down on that investment. As of June, Buffett’s holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) has a 25% stake in the oil company.
Although some may believe otherwise, this isn’t a vote for fossil fuels over renewable energy. It’s true that Warren Buffett doesn’t own shares of Tesla (NASDAQ:TSLA). However, the biggest reason is one of valuation, not a statement about how Buffett may feel about electric vehicles.
Valuation is not a concern with Occidental Petroleum. And as much as this investment is likely to pay off in the short term for Buffett, it’s also a long-term investment on renewable energy. That’s because, like many investors, Buffett knows that traditional oil companies will have a seat at the alternative energy table.
Chevron (CVX)
Valuation is also not one of Buffett’s concerns when it comes to Chevron (NYSE:CVX). It’s true that as part of Berkshire’s recent purchase of OXY stock, it reduced its position in CVX stock. But you shouldn’t take that to mean that Buffett is souring on Chevron.
Chevron is an integrated energy company which means it has operations in the upstream, midstream and downstream areas of oil exploration and production. The company has a rock-solid balance sheet that will allow the company to be profitable even if oil drops below $60. That’s not expected to happen for some time.
Plus, the company’s history of rewarding shareholders with stock buybacks and dividends is a natural magnet for a value investor like Buffett. Moving into the future, Chevron is taking initial steps towards finding its niche in the renewable energy sector. The company has taken a measured approach, but one that should serve it, and investors, well.
DaVita (DVA)
The last of the Warren Buffett stocks to buy on this list is DaVita (NYSE:DVA). The company is one of Buffett’s holdings that provides exposure to the healthcare sector. Specifically, DaVita specializes in treating kidney disease including a network of dialysis centers. Since kidney disease has a high correlation with conditions such as obesity, the company’s services are likely to be in high demand in coming years.
Still, a company is different from a stock. And prior to 2023, DVA stock was down sharply from its 2021 highs. That would matter to investors taking a new position, but Buffett has owned the stock since 2011 when it was trading for $48.85 per share.
As of February 2023, Berkshire Hathaway owned 40.1% of the DaVita. As Will Ashworth pointed out at that time, this was Berkshire’s largest position based on ownership stake at the time.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.