5 Warren Buffett Stocks With High Margins of Safety

Stocks in Berkshire's equity portfolio that are undervalued based on DCF models

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James Li
Nov 30, 2022
Summary
  • Several stocks in Berkshire’s third-quarter 13F equity portfolio are undervalued based on DCF.
  • The stocks are also fairly valued or undervalued based on the GF Value.
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According to the All-in-One Screener, five stocks in Berkshire Hathaway Inc.’s (

BRK.A, Financial)(BRK.B, Financial) third-quarter equity portfolio that have high margins of safety based on discounted cash flow and are either fairly valued or undervalued based on the GF Value are Visa Inc. (V, Financial), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), U.S. Bancorp (USB, Financial), Bank of New York Mellon Corp. (BK, Financial) and Globe Life Inc. (GL, Financial).

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The DCF Calculator contains several sections, including a parameters section, a fair value and margin of safety section and a Reverse DCF section. For more information on how to use and access the DCF Calculator, users can consult the tutorial article on the subject.

Users can also screen for undervalued stocks using the All-in-One Screener, which contains more than 500 predefined filters grouped into categories like fundamental, valuation, growth and dividends. The valuation ratio tab includes filters for margin of safety and price-to-GF Value.

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Known as the “Oracle of Omaha,” Buffett studied under Benjamin Graham at Columbia University and built Berkshire from a textile company into a major insurance conglomerate. As of Wednesday, Berkshire’s market cap is $685.67 billion.

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As of September, the conglomerate’s $296.10 billion 13F equity portfolio contains 49 stocks, with three new positions and a quarterly turnover ratio of 3%. The top four sectors in terms of weight are technology, financial services, energy and consumer defensive, accounting for 45.16%, 24.01%, 12.05% and 12% of the equity portfolio.

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Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but the reports can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Visa

Berkshire owns 8,297,460 shares of Visa (

V, Financial), giving the position 0.5% equity portfolio weight.

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Shares of Visa traded around $209.80, showing the stock is modestly undervalued based on its price-to-GF Value ratio of 0.77 as of Wednesday.

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Based on earnings of $6.99 per share with a 10-year growth rate of 19.7%, Visa is valued at $235.66 assuming the default DCF Calculator parameters, including a terminal-stage growth rate of 4% over 10 years and a discount rate of 10%. With a margin of safety of 11.01%, Visa is modestly undervalued based on the DCF earnings model.

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The San Francisco-based payment processing company has a GF Score of 99 out of 100, driven by a rank of 10 out of 10 for profitability and growth, a rank of 9 out of 10 for momentum and GF Value and a financial strength rank of 7 out of 10.

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Gurus with holdings in Visa include

Andreas Halvorsen (Trades, Portfolio)’s Viking Global LP, Frank Sands (Trades, Portfolio)’ Sands Capital Management and Ken Fisher (Trades, Portfolio)’s Fisher Investments.

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Taiwan Semiconductor Manufacturing

Berkshire owns 60,060,880 shares of Taiwan Semiconductor Manufacturing (

TSM, Financial), giving the position 1.39% equity portfolio weight. The stock sits in Berkshire’s 10th-largest holding as of the third quarter.

Shares of Taiwan Semiconductor Manufacturing traded around $83.11, showing the stock is significantly undervalued based on its price-to-GF Value ratio of 0.67 as of Wednesday.

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Based on earnings of $5.80 per share and a 10-year growth rate of 14.5%, Taiwan Semiconductor Manufacturing is valued at $137.36 assuming the default DCF Calculator parameters. With a margin of safety of 39.82%, the stock is significantly undervalued based on the DCF earnings model.

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The Taiwanese semiconductor company has a GF Score of 91 out of 100: Even though the company’s momentum ranks just 2 out of 10, Taiwan Semiconductor Manufacturing has a rank of 10 out of 10 for profitability and growth and a rank of 8 out of 10 for financial strength and GF Value.

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U.S. Bancorp

Berkshire owns 53,045,548 shares of U.S. Bancorp (

USB, Financial), following an Oct. 31 reduction of the holding according to GuruFocus Real-Time Picks, a Premium feature. The stock occupies 0.76% of the equity portfolio.

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Shares of U.S. Bancorp traded around $45.39, showing the stock is modestly undervalued based on its price-to-GF Value ratio of 0.86 as of Wednesday.

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Based on earnings of $4.21 per share and a 10-year growth rate of 5.2%, U.S. Bancorp is valued at $53.26 assuming the default DCF Calculator parameters. With a margin of safety of 14.78%, U.S. Bancorp is modestly undervalued based on the DCF earnings model.

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U.S. Bancorp has a GF Score of 77 out of 100 based on a growth rank of 7 out of 10, a GF Value rank of 7 out of 10, a profitability rank of 6 out of 10, a momentum rank of 5 out of 10 and a financial strength rank of 3 out of 10.

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Bank of New York Mellon

Berkshire owns 62,210,878 shares of Bank of New York Mellon (

BK, Financial), giving the position 0.81% equity portfolio weight.

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Shares of Bank of New York Mellon traded around $45.39, showing the stock is fairly valued based on its price-to-GF Value ratio of 0.93 as of Wednesday.

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Based on earnings of $3.29 and a 10-year growth rate of 10.7%, Bank of New York Mellon is valued at $60.16 assuming the default DCF Calculator parameters. With a margin of safety of 23.70%, the stock is modestly undervalued based on the DCF earnings model.

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The New York-based investment company has a GF Score of 82 out of 100 based on a financial strength rank of 4 out of 10, a rank of 8 out of 10 for growth and momentum and a rank of 6 out of 10 for profitability and GF Value.

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Globe Life

Berkshire owns 6,353,727 shares of Globe Life (

GL, Financial), giving the position 0.21% equity portfolio weight.

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Shares of Globe Life traded around $119.96, showing the stock is fairly valued based on its price-to-GF Value ratio of 1.10 as of Wednesday.

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Based on earnings of $7.09 and a 10-year growth rate of 10.3%, Globe Life is valued at $126.19 assuming the default DCF Calculator parameters. With a margin of safety of 4.94%, the stock is fairly valued based on the DCF earnings model.

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The McKinney, Texas-based insurance company has a GF Score of 85 based on a growth rank of 10 out of 10, a profitability rank of 8 out of 10, a momentum rank of 6 out of 10, a financial strength rank of 4 out of 10 and a GF Value rank of 3 out of 10.

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I am/we currently own positions in the stocks mentioned, and have NO plans to sell some or all of the positions in the stocks mentioned over the next 72 hours. Click for the complete disclosure
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