Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett is easily the greatest value investor of all time. By buying high-quality stocks and holding them for decades, he has been able to amass a stunning amount of personal wealth. In fact, Buffett is still the fourth-richest person in the world, despite his enormous charitable donations over the years.
However, even the Oracle of Omaha hasn't been able to escape the ravages of COVID-19. Several of Buffett's top holdings, after all, have lost a staggering amount of value this year.
Which Buffett stocks are now too cheap to ignore? While there are a fair number of top contenders, the most attractively priced Buffett stocks at the moment are Berkshire Hathaway (class B shares for us mere mortals), and one of his more curious picks in recent times, Teva Pharmaceutical Industries Ltd. (NYSE:TEVA).
Here's why Berkshire Hathaway and Teva Pharmaceutical might be worth adding to your portfolio soon.
Berkshire: You may never get this opportunity again
Berkshire is Buffett's highly diversified holding company. The company has enormous stakes in several fundamental industries such as energy, finance, healthcare, insurance and reinsurance, real estate, and transportation, among others. Since Buffett took over as CEO, Berkshire's shares have crushed the broader markets, despite his penchant to invest mainly in defensively oriented stocks such as Bank of America and Coca-Cola. That's an amazing track record that should appeal to any type of investor.
Why is Berkshire's stock a particularly good buy right now? After this year's 14.4% drop, Berkshire's shares are now at their cheapest levels in over a decade. The company's first- and second-quarter earnings are going to take a big hit, for sure. There's no denying this fact. Social distancing has wrecked havoc on the airline industry, led to a massive drop in consumer spending, and contributed in a major way to the marked drop in crude oil prices this year. Berkshire has a fair amount of exposure to all of these segments of the broader economy, which will undoubtedly weigh on its financial performance during the first half of 2020.
However, this downward trend will eventually reverse course for two inter-related reasons. In short, Berkshire has the genius of Buffett on its side, as well as $128 billion in cash to go bargain shopping. That's a powerful combination. As such, smart investors may want to take advantage of this fire sale on Berkshire's stock. After all, you may never get another chance to buy this quintessential Buffett stock at these rock-bottom levels ever again.
Teva: Nowhere to go but up
Teva is a struggling generic drugmaker with a frightening amount of debt. So when Buffett first bought this stock a few years back, the oddball purchase grabbed headlines, and for good reason. Teva, in effect, has been one of Buffett's biggest losers over the past two years, illustrated by the graph below.
Nontheless, Buffett hasn't given up on Teva, and neither should retail investors. Teva's stock, in fact, is a compelling value play for a couple of solid reasons.
First off, Teva's shares haven't been this cheap in almost 20 years. While Teva does have some glaring fundamental issues, these problems are being blown way out of proportion by this emotionally charged market. Teva isn't headed for bankruptcy court, and its fundamentals should steadily improve from this point forward. So, there's no logical reason for its shares to be trading at such bargain-bin levels.
Keeping with this theme, the drugmaker's stock is trading at less than four times expected earnings, and 75% of its book value. Teva, therefore, is hands-down one of the cheapest major drug manufacturers in the market today.
Last but certainly not least, Teva's comeback story is starting to take shape, fueled by new growth products such as migraine medicine Ajovy and muscle-disorder drug Austedo. The company will need to tack on one or more additional growth products to complete its turnaround, but that's not an unattainable goal by any means.
All told, Teva is a somewhat risky play because of its high levels of debt and the soft market for generic drugs in general. But this beaten-down Buffett stock is arguably way too cheap to ignore right now.