Warren Buffett is known for investing in value stocks -- companies that trade at reasonable valuations compared to their earnings and growth potential. Satellite radio giant Sirius XM (NASDAQ:SIRI) and supermarket chain Kroger (NYSE:KR) fit well into Berkshire Hathaway (Buffett's multi-billion dollar holding company)  because of their stable business models and strong cash flow.

Let's dig deeper into why you should consider betting on these two stocks. 

1. Sirius XM

According to Buffett, successful companies have an economic moat -- a competitive advantage that sets them apart from the competition. With its monopoly in satellite radio, Sirius XM has a massive moat (although it still competes with traditional radio). Its consistent cash flow and diversification into synergistic opportunities like music and podcasting also set it up for long-term success.

Cash arranged in dollar symbol.

Image source: Getty Images.

Formed by the 2008 merger between Sirius and XM Satellite Radio, Sirius XM is the only satellite radio company in the U.S. The company boasts a new car penetration rate of 80% and further bolsters its moat with exclusive content such as The Howard Stern Show, which renewed for an additional five years in 2020. 

First-quarter revenue grew 5% to $2.06 billion, and adjusted EBITDA jumped 7% to $682 million. The company's advertising business helps power top-line expansion, with revenue in the segment growing 29% to $312 million because of strength in Pandora music and Stitcher, a podcasting platform Sirius acquired for $325 million in 2020.

Management expects full-year 2021 revenue to grow 3.8% to $8.35 billion and adjusted EBITDA to remain flat at roughly $2.6 billion. 

As a mature company in an established market, Sirius isn't growing very fast, but it makes up for it with consistent cash flow (expected to total $1.6 billion in 2021). The company uses its cash to return value to shareholders, and its board has authorized a jaw-dropping $16 billion worth of share repurchases with roughly $1 billion remaining as of March.  

2. Kroger

Kroger is another value stock that fits well into Buffett's Berkshire Hathaway portfolio, and with $1.8 billion worth of shares, Buffett is betting big on the company. The national supermarket chain got a massive boost from the coronavirus pandemic, which increased at-home shopping activity and basket sizes in 2020. It can maintain its momentum with its affordable valuation and pivot to e-commerce. 

With a market cap of $28 billion, Kroger trades for just 12 times forward earnings, which is significantly below the S&P 500's average price-to-earnings (P/E) ratio of 37. Like Sirius, the company also operates in a mature and relatively slow-growing industry. First-quarter identical sales declined by 4% (sending quarterly revenue down 1% to $41.3 billion). But on a two-year basis, which smooths out the pandemic's effects on the prior-year period, identical sales are up 15%.  

Management aims to maintain Kroger's expansion through e-commerce. The company's network of over 2,100 pickup and 2400 delivery locations give it a logistics advantage, allowing it to reach 98% of its customer base. Digital sales grew 16% in the first quarter and 108% on a two-year basis. 

Like many Buffett stocks, Kroger reports solid bottom-line performance. The company expects $1.8 to $2 billion in free cash flow in full-year 2021 and has authorized a $1 billion buyback in the first quarter. The stock also boasts a dividend yield of 2.2% and has increased its payout for 15 consecutive years. 

Betting on cash flow 

For value investors, cash flow is king. And while Sirius and Kroger are mature companies that aren't growing super fast anymore, they both boast solid bottom-line performance that helps them return value to shareholders through buybacks and dividends. These stocks exemplify Buffett's investment strategy and would make great investments.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.