Investors around the world are preparing to make the journey to Omaha, Nebraska to attend Berkshire Hathaway Inc.’s (BRK.A, Financial) (BRK.B, Financial) annual shareholder meeting this weekend.
The insurance conglomerate headed by legendary guru Warren Buffett (Trades, Portfolio) and his partner Charlie Munger (Trades, Portfolio) will host the 2023 meeting on Saturday, May 6 at the CHI Health Center. CNBC will also be streaming the event, dubbed “the Woodstock for Capitalists,” starting at 9:45 a.m. Eastern Time.
The billionaire investor seeks a margin of safety between a company’s share price and its intrinsic value. Additionally, he advocates for buying “wonderful” companies at “fair” prices instead of fair companies at wonderful prices. Buffett also tends to favor high-quality companies that he understands and have strong moats.
Last year, the Oracle of Omaha and his team significantly increased the firm’s stake in energy company Occidental Petroleum Corp. (OXY, Financial) while cutting back on banks like U.S. Bancorp (USB, Financial) and Bank of New York Mellon Corp. (BK, Financial).
As such, investors may be interested in looking at some of the stocks in Berkshire’s $299.01 billion fourth-quarter equity portfolio that are undervalued according to an earnings-based discounted cash flow model.
According to GuruFocus portfolio data, which is based on 13F filings as of Dec. 31, current positions in Berkshire’s portfolio that have a margin of safety and high predictability include Bank of America Corp. (BAC, Financial), Louisiana-Pacific Corp. (LPX, Financial), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), Citigroup Inc. (C, Financial) and United Parcel Service Inc. (UPS, Financial).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include the positions in U.S. stocks and American depository receipts, but they 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.
Bank of America
Shares of Bank of America (BAC, Financial) are trading with a 74.41% discount to their fair value of $114.58 according to the earnings-based DCF model.
The Charlotte, North Carolina-based bank, which is Buffett’s second-largest holding, has a $234.05 billion market cap; its shares were trading around $29.36 on Monday with a price-earnings ratio of 8.82, a price-book ratio of 0.93 and a price-sales ratio of 2.27.
The GF Value Line suggests the stock is modestly undervalued currently based on its historical ratios, past performance and future earnings projections.
At 74 out of 100, the GF Score indicates Bank of America will likely have average performance in the future. The company recorded a high rating for GF Value, while profitability, growth and momentum were more moderate and the financial strength rank was low.
Bank of America also has a predictability rank of three out of five stars. According to GuruFocus research, companies with this rank return an average of 8.20% annually over a 10-year period.
Of the gurus invested in Bank of America, Buffett has the largest stake with 12.63% of its outstanding shares. Dodge & Cox, Ken Fisher (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Li Lu (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and several others also have notable holdings.
Louisiana-Pacific
Louisiana-Pacific’s (LPX, Financial) stock is trading at a 58.50% discount to its DCF fair value of $143.33.
The building materials manufacturer headquartered in Nashville, Tennessee has a market cap of $4.25 billion; its shares were trading around $59.02 on Monday with a price-earnings ratio of 4.45, a price-book ratio of 2.95 and a price-sales ratio of 1.16.
According to the GF Value Line, the stock is modestly undervalued currently.
The GF Score of 97 implies the company has high outperformance potential on the back of high ratings for all five criteria.
The company also has a three-star predictability rating.
With a 9.83% stake, Buffett is the company’s largest guru shareholder. Other top guru investors include Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Chuck Royce (Trades, Portfolio), Hotchkis & Wiley and First Eagle Investment (Trades, Portfolio).
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM, Financial) is trading at a 50.73% discount to its fair value of $170.62.
The Taiwanese manufacturer of semiconductor chips has a $436.85 billion market cap; its shares were trading around $84.24 on Monday with a price-earnings ratio of 12.94, a price-book ratio of 4.48 and a price-sales ratio of 5.74.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
The company has high outperformance potential with a GF Score of 99, driven by solid ratings for profitability, growth, GF Value, momentum and financial strength.
As for its predictability rank, the company received a perfect five stars. GuruFocus found companies with this rank return an average of 12.10% annually.
Fisher is Taiwan Semiconductor’s largest guru shareholder with a 0.47% stake. The stock is also being held by Steve Mandel (Trades, Portfolio), First Eagle, Buffett, Simons’ firm, Baillie Gifford (Trades, Portfolio), Frank Sands (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio) and many others.
Citigroup
With a fair value of $90.89, shares of Citigroup (C, Financial) are trading at a 47.53% discount.
The New York-based bank has a market cap of $93.33 billion; its shares were trading around $47.95 on Monday with a price-earnings ratio of 6.69, a price-book ratio of 0.50 and a price-sales ratio of 1.24.
The GF Value Line suggests the stock is modestly undervalued currently.
The GF Score of 75 means the company is likely to have average performance going forward. It raked in high ratings for GF Value and momentum, middling marks for profitability and growth and a low financial strength rank.
Citigroup also has a three-star predictability rank.
Holding a 2.85% stake, Buffett is Citigroup’s largest guru shareholder. Hotchkis & Wiley, Pzena, Nygren and several other investors also have significant positions.
United Parcel Service
Generating a DCF fair value of $326.10, shares of United Parcel Service (UPS, Financial) are trading with a 44.14% margin of safety.
The shipping and logistics company also known as UPS, which is headquartered in Atlanta, has a $156.16 billion market cap; its shares were trading around $182.28 on Monday with a price-earnings ratio of 14.75, a price-book ratio of 7.79 and a price-sales ratio of 1.60.
According to the GF Value Line, the stock appears to be fairly valued.
Supported by solid ratings for profitability, growth and momentum as well as more moderate financial strength and GF Value ranks, the GF Score is 94. As such, the company has high outperformance potential.
Further, UPS has a four-star predictability rank. GuruFocus says companies with this rank return, on average, 9.8% annually.
PRIMECAP Management (Trades, Portfolio) is UPS’s largest guru shareholder with a 0.28% stake. The T Rowe Price Equity Income Fund (Trades, Portfolio) also has a large investment.
Other undervalued holdings
Additional holdings in Buffett’s 50-stock equity portfolio as of the end of fourth-quarter 2022 that are undervalued currently are U.S. Bancorp, DaVita Inc. (DVA, Financial), Bank of New York Mellon, Globe Life Inc. (GL, Financial), Visa Inc. (V, Financial) and Charter Communications Inc. (CHTR, Financial).
