Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%) has a $350 billion stock portfolio with dozens of individual investments, many of which were hand-picked by Warren Buffett. Some have performed extremely well, and many trade at lofty valuations like most of the rest of the stock market, but that isn't true in all cases.
In fact, there are some stocks in Berkshire's portfolio that look extremely cheap as we head into 2022. Here are three in particular that could be worth a look for investors seeking cheap stocks with massive potential in the year ahead and beyond.
Image source: The Motley Fool.
Big EV potential and a cheap valuation
General Motors (GM 1.20%) has pulled back by more than 10% from its recent high, and trades for a rock-bottom valuation of less than eight times trailing-12-month earnings. And there's quite a lot that could drive the stock higher. For one thing, the supply chain issues (specifically the chip shortage) that are limiting production should work themselves out in 2022.
While GM's existing business is a bargain at the current stock valuation, it's the company's potential in electric and autonomous vehicles that makes it a really exciting investment. GM recently announced that it has started deliveries of its Hummer EV pickup and BrightDrop EV600 commercial vehicles. And not only will these deliveries ramp up significantly in 2022, but there are also some products around the corner that will move the needle even more. The electric Silverado pickup truck, which is set to be unveiled in early January, is an especially high-potential product launch that could move the stock as well.
Lastly, don't forget Cruise, the autonomous-vehicle technology company that is majority-owned by GM. It could have massive potential all by itself, especially as it seeks final approval to start commercializing its robo-taxi fleet in San Francisco.
One of Buffett's biggest winners has come crashing back to earth
Brazilian payment processing company StoneCo (STNE -1.64%) was one of Berkshire's best performers at the start of 2021. Shares hit $95 in the first quarter of 2021, nearly three times where the company started trading after its 2018 initial public offering. Since then, they have plunged back to earth, and are now down by more than 80% from their all-time high.
There are a few valid reasons for the move. Brazil's inflation issues are even worse than ours, and its economy is more sensitive than ours when it comes to interest rates and other matters. While StoneCo's payment processing business should be just fine, the lending operation could suffer. The company makes loans to small businesses, and most of these are backed by StoneCo's own debt, so a wave of customer defaults would be bad, to put it mildly. Currency headwinds (the Brazilian real has weakened against the dollar) aren't helping, either.
Having said all that, if StoneCo can get past the current headwinds largely unscathed, it could have a very bright future. Its payment volume more than doubled year over year in the most recent quarter, and there's still a huge market opportunity in Brazil.
Could bank stocks have a great 2022?
Bank of America (BAC -1.07%) is Berkshire's second-largest stock holding, and one that Buffett has specifically called out as an investment Berkshire values highly. The stock trades for a significantly lower price-to-book multiple than peers like JPMorgan Chase (JPM 0.15%) and U.S. Bancorp (USB -1.49%), despite being in the same league when it comes to asset quality.
The bank's recent results are impressive. Despite the persistent low-rate environment, Bank of America grew its revenue by 12% year over year in the third quarter and reported record client investment balances and strong consumer deposit activity, with deposits exceeding $1 trillion for the first time ever. Speaking of deposits, Bank of America could be one of the biggest beneficiaries if the Federal Reserve starts raising rates in 2022 since it has a high proportion of deposits that are not interest-bearing and a large loan portfolio that could generate significantly more interest income.
Buy for the long term
As the headline suggests, all three of these companies have catalysts that could propel their stock prices higher in 2022. GM is starting to roll out several high-potential electric vehicles on a large scale, StoneCo could rebound if inflation fears subside, and Bank of America has quite a bit to gain if rates rise.
Having said that, there's no guarantee that any of those things will happen in the next year. Regardless, these are three well-run businesses with lots of long-term return potential, and it would be wise to approach them with that in mind. After all, Buffett is an ultra-long-term investor, and that's why these three stocks are in Berkshire's portfolio.
