This year has been a little dry when it comes to Warren Buffett stocks. Like most investors, the Oracle of Omaha himself has been quite selective and cautious in picking stocks lately, and he doesn’t seem too optimistic about economic conditions overall, if his dumping of billions of dollars of stocks is any indication.
Of course, Warren Buffett doesn’t have a crystal ball that can perfectly predict the future. However, with his decades of investing experience, his caution definitely merits attention, and it’s probably a smart idea for investors to start adding some value stocks to hedge against potential market volatility.
One great way to do that is to follow Buffett’s own moves and look at which value stocks Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) bought into last quarter. As we near the end of 2023, it makes sense to consider where the master value investor himself is putting money right now. Even during rocky times, Buffett keeps an eye out for companies trading at levels below what he believes they are intrinsically worth. That’s the very definition of value stocks.
Let’s take a closer look at why Warren Buffett likely scooped up these three value stocks this past quarter.
Sirius XM (SIRI)
We live in an increasingly digital era where video and music streaming rule. Thus, many have left legacy radio stalwarts like Sirius XM (NASDAQ:SIRI) for dead. Its years of sluggish growth and an exodus of customers to trendier music platforms certainly don’t help its case. However, I believe the rumors of radio’s demise are greatly exaggerated. While Sirius faces secular decline risks, its fortunes appear to be turning around.
From my perspective, a resurgence in podcasting bodes very well for Sirius. Yes, podcasts are not radio per se, but they speak to a strong ongoing demand for audio content. Sirius happens to boast an unrivaled content library spanning exclusive artist channels, live sports, news, and more. As things considered, it offers a compelling, differentiated audio product. Sirius may be old, but not obsolete.
I believe Sirius will likely return to customer growth, especially with video streaming services facing password-sharing crackdowns. Churning video customers may opt for cheaper audio alternatives like Sirius. Notably, while revenue growth slowed over the years, Sirius has rapidly grown earnings. In my view, with costs well controlled, any revenue uptick should substantially boost profits.
The market seems to agree that Sirius possesses turnaround potential. Indeed, shares are already up 34% in the past six months as of this writing. Of course, this stock has only begun clawing back from a more than 40% drop in 2022. But at 15-times forward earnings, Sirius still trades at a steep discount to its historical levels, as well as its peers. From my perspective, with catalysts aligning, it appears that the fallen radio star could shine again soon. With value investing icon Warren Buffett recently boosting his stake, Sirius seems like an intriguing value bet here.
Public Service Enterprise (PEG)
Naturally, when one hears “Berkshire stock,” names like Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC) spring to mind. However, lesser-known subsidiaries of Buffett’s empire offer hidden value plays as well. One such example is Public Service Enterprise (NYSE:PEG), held by Berkshire subsidiary New England Asset Management. Beyond the Buffett vote of confidence, Public Service Enterprise sports rock-solid financials and fundamentals.
In my opinion, the company’s recently reported Q3 figures were spectacular. Earnings per share grew 23% alongside 8% revenue growth. Moreover, management doubled down on full-year earnings guidance. From my perspective, for a supposedly boring gas and electric utility play, PEG stock boasts exciting growth. Of course, serving the densely-populated Northeast U.S. gifts PEG a captive customer base, but management deserves credit for driving operations excellence and efficiency.
With interest rates remaining high, many avoid utility stocks, given their rate-sensitive business models. However, I think it’s different in this case, because so much of the company’s footprint operates under revenue decoupling mechanisms. Therefore, Public Service Enterprise enjoys insulation from usage fluctuations. Moreover, its infrastructure investments directly earn positive returns approved by state regulators. Essentially, this limits risks from higher rates, while allowing investors to benef from rising rates through higher approved returns.
Public Service Enterprise has laid strong financial foundations to support predictable growth for years. Though trading at 18.6-times forward earnings, PEG stock still offers reasonable value. After all, its earnings multiple sits well below its five-year average, despite superior profit growth versus utility peers. Throw in its well-covered 3.5% dividend yield, and PEG stock seems like a “boring” value play I wouldn’t overlook.
Verizon (VZ)
Verizon (NYSE:VZ) hardly needs an introduction as an industry titan. That said, the onset of the T-Mobile (NASDAQ:TMUS)-sparked wireless price war marked the beginning of Verizon’s struggles. Of course, years of eroding subscriber counts and falling revenues spurred doomsday predictions around Verizon’s business. In my view, the fear priced into Verizon stock has created a once-in-a-generation value opportunity.
While legacy wireline declines hurt, wireless still drives the majority of Verizon’s revenues. I believe robust demand exists for Verizon’s best-in-class network. The company just needs the right, competitively-priced wireless plans to capture it. Importantly, Verizon’s latest “myPlan” options appear to resonate better with consumers. Accordingly, we’re seeing Verizon’s positive phone subscriber growth in years.
Moreover, Verizon’s cash cow wireless business throws off immense cash flows to support its generous dividend. Though unlikely to grow soon, I believe Verizon’s 7.1% dividend yield looks pretty safe at a 57.3% payout ratio. With wireless margins high and valuation at 8-times forward earnings, Verizon has likely priced in quite abysmal scenarios. Should trends stabilize (not even improve), substantial upside exists with this telecom stock.
On the date of publication, Omor Ibne Ehsan 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.
