Over the past 55 years, few if any investors have held a candle to the returns that Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett has generated for his investors. Aside from growing his own net worth to more than $82 billion -- and this, mind you, after donating $37 billion to charity over the past 14 years -- he's helped to create more than $400 billion in value for his company's shareholders.
The Oracle of Omaha's secret to investing success has always been to buy great companies at fair prices and hang onto them for a long time. He's certainly not perfect, but a 2,744,062% return for Berkshire Hathaway's stock since 1965 pretty much tells you everything you need to know about Buffett's long-term track record.
The thing is, there are a handful of stocks currently in Warren Buffett's investment portfolio that look to be valued at bargain-basement prices. Given Buffett's and his investing teams' history of long-term success, the following three stocks may be worth buying right now.
The interesting thing about money-center bank Wells Fargo (NYSE:WFC), which Buffett has held for roughly three decades, is that Berkshire Hathaway has aggressively sold it in recent years. Once holding nearly 480 million shares, Buffett's company now owns approximately 136.3 million shares.
If asked to pinpoint why Buffett and his team have been actively selling down their stake, I would guess it's because of the bank's unauthorized account scandal that emerged in in 2016-2017. As a result of aggressive cross-selling campaigns at the branch level, roughly 3.5 million unauthorized accounts were opened in a seven-year stretch from 2009 to 2016. As a result, Wells Fargo has been hit with settlements and restrictions. It's also on its third CEO in nearly as many years. Warren Buffett is a big believer in management trust, and I suspect that trust has been shaken to the core.
Then again, I also believe Buffett's selling while investors should be buying. You see, PR flubs are pretty common among big banks, and they rarely have any long-term impact on their ability to attract new customers.
Furthermore, new CEO Charles Scharf has shown himself to be a successful leader. Scharf held the reins at payment processor Visa from 2012 to 2016, ultimately doubling profits for the company during his tenure. The CEO turnover at Wells Fargo hasn't been fun for long-term shareholders, but the bank should be in good hands now.
Wells Fargo also has a history of attracting an affluent clientele that's less likely to change their consumption habits during periods of economic instability. These high earners are also more likely to take advantage of multiple bank services that Wells Fargo offers, including checking account, loan, and asset management services.
With Wells Fargo valued at 64% of its book value and often near the top of its class in return on assets among big banks, it's unquestionably a bargain-bin buy.
Teva Pharmaceutical Industries
Another Buffett stock that's mind-numbingly cheap is brand-name and generic drugmaker Teva Pharmaceutical Industries (NYSE:TEVA). Note that Teva isn't a stock that Buffett specifically purchased for Berkshire's portfolio. It was added by one of his investment lieutenants, Todd Combs or Ted Weschler.
There's no question that Teva has had its fair share of missteps over the past three years. It paid a settlement to the Justice Department over an international bribery scheme, suspended its dividend, and faced more lawsuits than I can count over its role in alleged generic price fixing and the opioid crisis. As the icing on the cake, its top-selling brand-name drug, Copaxone, lost its exclusivity.
But Teva Pharmaceutical is also a big-time bargain if you have a long investment horizon. Perhaps the biggest reason to be bullish about the company's future is its CEO, Kare Schultz. Schultz is a turnaround specialist. In his roughly three years at the helm, he's reduced Teva's net debt by $10 billion. The work isn't done with regard to improving the company's balance sheet, but Teva is in considerably better financial shape than it was when he took over.
This is also a company that stands to benefit from an aging global population that has increased access to prescription medicine. With brand-name list prices seemingly skyrocketing by the day, generics are set to play a big role in maintaining the health of elderly patients. I expect Teva's pricing power on generics to improve over time as demand continues to tick higher.
What investors are going to get with Teva is a company fully capable of $2 billion or more in annual operating cash flow. It's also valued at close to 3 (yes, 3) times forward earnings. Schultz has proved masterful in guiding Teva thus far, and I expect he'll successfully navigate the company through its existing legal battles, too.
Given Warren Buffett's love for bank stocks, it's only fitting that two of the three top bargain-bin buys in Berkshire Hathaway's investment portfolio are banks. Although it's not as fundamentally cheap as Wells Fargo on a book value basis, U.S. Bancorp (NYSE:USB) is at a significant discount to its historic book multiple.
Bank stocks have been absolutely clobbered by the coronavirus disease 2019 (COVID-19) pandemic, which pushed the U.S. economy into its first recession in 11 years. Banking is a notoriously cyclical industry that's adversely affected by economic downturns. The Federal Reserve's lowered lending rates will reduce the amount of interest income banks can collect on loans. At the same time, a weaker economy means higher loan delinquency rates. In other words, banks are getting hit on both ends.
However, U.S. Bancorp is a special breed of regional bank that should be owned by long-term investors. Historically, U.S. Bancorp has avoided riskier derivative investments that got its larger counterparts in trouble during the financial crisis. Rather, it focuses on growing loans and deposits, which is the boring but profitable aspect of banking. This focus on the basics is what's allowed U.S. Bancorp to rebound faster than its peers from economic troughs, as well as deliver superior return on assets.
Furthermore, U.S. Bancorp has done an exceptionally good job of promoting digital and online banking among its customers. In a two-year stretch, the number of total digital customers has jumped 7 percentage points to 77%, with loan sales completed digitally nearly doubling from 25% to 46%. Since digital transactions cost a mere fraction of in-person transactions, this trend is allowing U.S. Bancorp to close physical branches and lower its noninterest expenses.
For a bank stock that's historically been valued at closer to twice its book value, investors can gobble up shares for just 24% over its book value. It's been more than a decade since U.S. Bancorp was this cheap.