Berkshire Hathaway (BRK.A -1.43%) (BRK.B -1.31%) CEO Warren Buffett is practically in a class of his own when it comes to investing success. Since taking over as CEO in 1965, he's helped create more than $500 billion in value for Berkshire Hathaway's shareholders and delivered an average annual return for the company's shares of 20%. Taking into account the year-to-date gains of the Class A shares (BRK.A), Buffett has seen his company's stock return nearly 3,400,000% since 1965.
The Oracle of Omaha's not-so-subtle secret to success has long been to buy businesses with sustainable competitive advantages and hold them for long periods of time. Once in a while, some of these "Buffett stocks" go on sale for investors. The following trio of discounted Buffett stocks can be confidently bought hand over fist in September.
The first top-performing Berkshire Hathaway holding that deserves to be scooped up by investors this month is payment-processing giant Mastercard (MA -1.13%). Shares of Mastercard have retraced about 15% from their all-time high. However, every double-digit decline in Mastercard's history as a publicly traded company has proved to be a buying opportunity for long-term investors.
The reason Mastercard is such a no-brainer buy has to do with its cyclical ties. As a payment processor, it generates more revenue when the economy is growing and struggles a bit when economic contractions and recessions arise. Although recessions are inevitable, they don't last very long -- usually a couple of months or a few quarters. Meanwhile, periods of economic expansion last for years. Thus, buying Mastercard allows investors to take advantage of the natural trend for economies to grow over time. It's that simple.
Something else to consider about Mastercard is its exceptionally long growth runway. A majority of the world's transactions are still being conducted in cash. This opens the door for Mastercard to expand organically and through acquisitions into underbanked regions of the world, including Southeast Asia, Africa, and the Middle East. This expansion won't happen overnight, but it can remain a steady source of growth for the company for a long time to come.
Investors will also notice that Mastercard isn't a lender and strictly sticks to the processing side of the equation. On the surface, this might not seem like the smartest idea. After all, long periods of expansion could allow Mastercard to reap the rewards of fees and interest income by becoming a lender. However, avoiding lending has its perks when those economic hiccups arise. Whereas lenders are compelled to set capital aside to cover credit and loan delinquencies, Mastercard doesn't have to divert its capital. This helps it bounce back from recessions faster than other financial stocks, and it preserves the company's lofty profit margin.
Teva Pharmaceutical Industries
Just how cheap is Teva? Based on Wall Street's consensus estimate, which is derived from Teva's own adjusted earnings guidance, shares of the company can be bought for a multiple of 3.7 times this year's earnings and 3.5 times the consensus forecast for 2022. For context, the benchmark S&P 500 has a current price-to-earnings (P/E) ratio of 35.4 and a 151-year average P/E of 16.
Teva is so inexpensive because it's working its way through a number of operating and legal issues. It grossly overpaid to acquire generic-drug maker Allergan, which ballooned its debt levels, has paid fines tied to foreign bribery allegations, and is facing a slew of lawsuits concerning its role in the opioid epidemic. Clearly, Wall Street is concerned about the company's near-term performance.
However, some of these concerns may be overblown. Since taking over as CEO, Kare Schultz has worked wonders. Teva's annual operating expenses have been slashed by billions of dollars, and the company's net debt sits at nearly $23 billion after topping $34 billion when he took over in late 2017. At the current trajectory, Teva should have less than $15 billion in net debt by the end of 2023. This will improve its financial flexibility and allow the company to make larger investments in brand-name drug research and generic-drug development.
There's also a realistic chance that Schultz orchestrates a settlement to the ongoing opioid legislation in most U.S. states. Teva is trying to avoid a large cash settlement and would prefer to supply select generic drugs free of charge over the coming decade as part of its fine. If Schultz can broker an agreement with the prosecuting states that doesn't involve a large up-front cash fine, Teva's valuation could soar overnight. There's obviously a risk to this not happening, but at less than 4 times this year's earnings, it's a calculated opportunity for value investors.
A third discounted Buffett stock investors can gobble up in September is auto behemoth General Motors (GM -1.24%).
General Motors has lost roughly a quarter of its value over the past three months, with supply issues taking most of the blame. The coronavirus pandemic pushed supply chains out of whack, which has led to a short-term supply shortage of the semiconductor chips used in automobiles. Companies like GM have had to pare back production until these supply issues are resolved.
But what's important to note here is that General Motors isn't dealing with a demand issue. While fixing supply won't happen overnight, demand for vehicles remains strong. That bodes well for GM, which can be purchased for less than 7 times Wall Street's consensus earnings for 2022.
The bigger catalyst for GM -- and the entire auto industry for that matter -- is the electrification of automobiles. The company plans to spend approximately $35 billion by mid-decade on electric vehicle (EV), autonomous vehicles, and battery research. By 2025, the company expects to have launched 30 EVs globally. The electrification of consumer vehicles and enterprise fleets is a multi-decade opportunity for GM that could finally lead to a valuation multiple expansion.
Keep in mind that GM's EV opportunity isn't confined to the borders of the United States. China is the largest auto market in the world, and General Motors has a significant presence in this market. Based on second-quarter deliveries, GM could sell more than 3 million vehicles in China this year. It already has the infrastructure and deals in place to become a major player in China's EV market.
Patient investors looking for a sneaky cheap stock in Buffett's portfolio should consider General Motors in September.