Undervalued Companies From Warren Buffett's Portfolio: Coca-Cola, ExxonMobil, and DIRECTV

Coca-Cola, ExxonMobil, and DIRECTV are part of Warren Buffett's portfolio, and they also look attractively valued.

Apr 9, 2014 at 1:00PM

Coca-Cola (NYSE:KO), ExxonMobil (NYSE:XOM), and DIRECTV (NASDAQ:DTV) are very different companies operating in unrelated industries. On the other hand, they have two very important similarities: The three of them are part of Warren Buffett's investment holding portfolio, and they are also trading at attractive valuation levels.

Coca-Cola offers sparkling dividends
Things haven't been easy for Coca-Cola lately; consumers in developed markets are paying increasing attention to the calories in the drinks they consume. In emerging markets, where volume is still expanding at a considerable rate, unfavorable currency fluctuations are affecting growth in recent quarters.

However, Coca-Cola owns 17 brands making over $1 billion in global annual revenue, in addition to 20 other growing brands generating between $0.5 billion and $1 billion in sales. This includes not only sodas but also healthier choices such as waters, juice, and sports drinks, all of which are positioned for growth among consumers looking for healthier alternatives.

Captura De Pantalla

Source: Coca-Cola.

Management estimates that nearly 800 million consumers will enter into the middle class by the end of this decade, and personal expenditure per capita is expected to grow 70% by 2020. This bodes remarkably well in terms of consumer demand in emerging markets over the coming years, and Coca-Cola is uniquely positioned to profit from those opportunities because of its global scale and brand recognition.

Coca-Cola has raised its dividend for 52 consecutive years, through good and bad economic times, so financial strength is not a question for this global juggernaut. This includes a dividend increase of 9% announced in February.

The dividend yield stands at 3.2%, which looks like an attractive valuation considering the company's quality and outstanding track record of dividend growth.

ExxonMobil is full of energy
When it comes to the energy sector, ExxonMobil is an undisputed industry leader. In fact, considering its gigantic market cap of nearly $420 billion, the company is one of the biggest corporations on the planet.

Global presence, integrated operations, unmatchable scale, and abundant financial resources generate considerable competitive strengths for ExxonMobil when competing for exploration projects all over the world. In addition, integration and scale produce superior profitability for the company versus other industry players.

Considering its size, it's not easy for ExxonMobil to find new projects with enough size to move the needle and an adequate risk-versus-profitability profile. Still, the company has managed to generate consistently growing dividends for shareholders over the long term.

Xom Image

Source: ExxonMobil.

Exxon has paid uninterrupted dividends since 1911, and the company has raised its payments for 31 years in a row. The stock is paying a dividend yield of 2.7%, and the payout ratio is comfortably low at around 33% of earnings, so dividends will most likely continue growing in the years ahead.

Energy companies usually trade at a discount to the general market because of their cyclicality, but ExxonMobil looks undervalued even when keeping these considerations in mind. The stock trades at a P/E ratio of 13 times earnings, versus an average P/E ratio of 18 for companies in the S&P 500 index.

Watching DIRECTV's growth in Latin America
DIRECTV owns a leading market position among a valuable user base of big spenders in television services. It's relatively inexpensive for the company to add new customers in terms of the required capital investments, and its size has allowed DIRECTV to acquire the rights to enormously valuable content such as the National Football League's Sunday Ticket package.

Captura De Pantalla
Source: DIRECTV.

While most of the company's growth in the U.S. comes from increasing average revenues per user, Latin America is proving to be a compelling opportunity for DIRECTV in terms of subscriber growth.

Excluding changes in foreign exchange rates, DIRECTV reported a 24% increase in Latin America revenues during the fourth quarter of 2013. This was driven by a strong growth rate of 15% in the average number of subscribers and an increase of 8% in local currency average revenues per user.

DIRECTV trades at a lower-than-average P/E ratio of 11.5 times earnings estimates for 2015, which looks like a convenient valuation considering the company's competitive position in the U.S. and growth opportunities south of the border.

Bottom line
Investors should never blindly follow the moves of others, not even Warren Buffett himself. However, when it comes to Coca-Cola, ExxonMobil, and DIRECTV, there are solid reasons to believe these stocks may be undervalued. In any case, having Warren Buffett on the same side of your position won't hurt at all.

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Andrés Cardenal owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and DirecTV, owns shares of Berkshire Hathaway and Coca-Cola, and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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