Stocks to buy

It’s a great time to be looking at undervalued Warren Buffett stocks. With inflation, geopolitical crises, and a potential recession all causing economic uncertainty, investors are seeking safe investments with a strong margin of safety.

And few investors have proven more capable of finding these sorts of investments than Warren Buffett. His holding company, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), has generated one of the most impressive track records in financial history. And Buffett is particularly well-known for his ability to find investments during panics, such as previous banking crises.

This takes us to 2023. What sorts of undervalued Buffett stocks to buy stand out most today? These three picks combine several attractive features: They’re all selling at a significant discount to the S&P 500 while being strong franchises and holding substantial prospects for share price appreciation when market sentiment improves.

Bank of America (BAC)

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Bank of America (NYSE:BAC) is Berkshire-Hathaway’s second-largest holding, only trailing Apple (NASDAQ:AAPL). And, as of today, BAC stock is perhaps the most undervalued of all its holdings as well.

Bank of America shares have slumped 30% over the past year, including a large drop in March. Traders are nervous about the current problems in the banking sector.

However, Bank of America is hardly the firm that investors should be worried about. The crisis is centered around regional banks, which have smaller deposit bases and more niche business models. The too-big-to-fail banks, like Bank of America, will be beneficiaries as money flows to larger and safer franchises.

Regardless, thanks to the latest sell-off, BAC stock is dirt cheap. Shares go for eight times forward earnings and now offer a 3.1% dividend yield as an added benefit.

Johnson & Johnson (JNJ)

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Johnson & Johnson (NYSE:JNJ) is one of Berkshire’s smaller holdings, with the firm currently owning an approximately $50 million stake in JNJ stock. This might be a good time for Buffett to up that position size.

That’s because Johnson & Johnson shares have fallen nearly 20% recently. That’s a huge move for such a stable low-volatility blue chip company as this one. J&J’s tremendous diversity of products across pharmaceuticals, medical devices, and consumer wellness items have given it incredible stability over the decades.

Perhaps traders are nervous about the upcoming spin-off of Kenvue, which will be the new name of J&J’s consumer products division. However, management believes that it will create more shareholder value by separating the wellness items from the rest of the business. In any case, it gives shareholders the opportunity to get in on the ground floor of this new publicly-traded enterprise later in 2023.

For now, JNJ stock is available below 15 times forward earnings, which is a rare bargain for this particular company. Shares also yield 2.9%.

Charter Communications (CHTR)

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Berkshire’s position in Charter Communications (NASDAQ:CHTR) also offers considerable value. Up until about 2021, cable stocks were flying high as the industry could do no wrong.

Since then, however, the pandemic-driven surge in consumer sign-ups has receded. Meanwhile, rising competition, heavy investments in new infrastructure, and high levels of leverage have cast the sector in a poor light. Charter’s debt, in particular, has concerned some folks now that interest rates are soaring, which could lead to a higher interest burden in the future.

That said, this is all baked into the price and then some. Charter stock has lost more than half its value since its 2021 peak, including a steep 35% decline just over the past 12 months.

The cable industry has its problems, no doubt. But demand isn’t going anyway, especially for home broadband connections. Telecom is known for being a recession-resistant industry. And now, with CHTR stock at just 11 times forward earnings, shares are priced for major upside once the current sentiment cycle improves.

On the date of publication, Ian Bezek held a long position in BRK-B and JNJ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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