Summary

• Undervalued stocks in the portfolio include BNY Mellon, DaVita, UPS, Wells Fargo
  
  WFC
  
  

  WFC
  

  and Globe Life
  
  GL
  
  

  GL
  

  .

Investors from around the world are heading to Omaha, Nebraska, to attend the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) annual meeting of shareholders this weekend, which is being held in person for the first time in two years.

The insurance conglomerate led by legendary guru Warren Buffett (Trades, Portfolio) and his partner Charlie Munger (Trades, Portfolio) will host the 2022 meeting on Saturday, April 30. CNBC will also broadcast the event, dubbed “the Woodstock for capitalists,” beginning at 9:45 a.m. Eastern.

The billionaire investor seeks a margin of safety between a company’s share price and its intrinsic value. Additionally, he advocates buying “wonderful” businesses at “fair” prices rather than fair businesses at exceptional prices. Buffett also tends to favor high-quality businesses that he understands and have strong moats.

After sitting on a growing pile of cash throughout the Covid-19 pandemic, the Oracle of Omaha and his team have made a series of significant investments in recent months, acquiring Alleghany

Yes

Yes
Corp. (Y, Financial) and stake in Occidental Petroleum

OXY

OXY
Corp. (OXY, Financial) and HP Inc. (HPQ, Financial).

As such, investors may be interested in some of the stocks in Berkshire’s $330.95 billion equity portfolio that are undervalued under a discounted cash flow model based on earnings.

According to portfolio data from GuruFocus, which is based on 13F filings as of Dec. 31, current positions in Berkshire’s portfolio that have a high margin of safety and predictability include Bank of New York Mellon Corp. (BK, Financial), DaVita Inc. (DVA, Financial), United Parcel Service Inc. (UPS, Financial), Wells Fargo & Co. (WFC, Financial) and Globe Life Inc. (GL, Financial).

Bank of New York Mellon

Shares of Bank of New York Mellon (BK, Financial) are trading at a 47.3% discount to their fair value of $80.79 under the earnings-based DCF model.

The New York-based investment bank, which is currently the 10^and– the largest holding, has a market cap of $34.38 billion; its shares were trading around $42.61 on Thursday with a price-to-earnings ratio of 10.53, a price-to-book ratio of 0.9 and a price-to-sales ratio of 2.27.

The GF value line

VALUE

VALUE
suggests that the stock is currently slightly undervalued based on historical ratios, past performance and future earnings projections.

GuruFocus rated BNY Mellon’s financial strength at 4 out of 10. Although the company has a comfortable level of interest coverage, assets are accumulating at a faster rate than revenue growth, indicating that it could become less effective.

The company’s profitability scored 6 out of 10 despite underperforming margins and returns on equity, assets and capital compared to competitors. BNY Mellon also has a moderate Piotroski F-Score of 5 out of 9, meaning operations are typical of a stable business. Due to consistently growing earnings and revenue, it has a predictability rating of four out of five stars. According to research by GuruFocus, companies in this ranking have an average return of 9.8% per year over a 10-year period.

Of the gurus invested in BNY Mellon, Buffett holds the largest stake with 8.96% of his shares outstanding. Dodge & Cox, First Eagle Investment (Trades, Portfolio), Chris Davis (Trades, Portfolio), Hotchkis & Wiley, Bill Nygren (Trades, Portfolio) and many others also hold the stock.

DaVita

DaVita (DVA, Financial) stock is trading at a 43.58% discount to its DCF fair value of $191.56.

The Denver-headquartered healthcare company, which provides dialysis services, has a market capitalization of $10.27 billion; its shares were trading around $108.08 on Thursday with a price-to-earnings ratio of 12.17, a price-to-book ratio of 13.91 and a price-to-sales ratio of 1.02.

According to the GF value line, the security is currently valued at its fair value.

DaVita’s financial strength was rated 4 out of 10 by GuruFocus. Despite adequate interest coverage, Altman’s low Z-Score of 1.49 warns that the company could be at risk of bankruptcy if it does not improve its liquidity. Return on invested capital also dwarfs the weighted average cost of capital, so value is created as the business grows.

The company’s profitability fared better, earning a 9 out of 10 thanks to strong margins and returns that outperform the majority of its industry peers. DaVita also has a high Piotroski F-Score of 8, implying sound business conditions, and steady growth in earnings and revenue which contributed to a four-star predictability ranking.

With a 37.66% stake, Buffett is the company’s biggest shareholder guru. Other top investor gurus include Larry Robbins (Trades, Portfolio), Jim Simons (Trades, Portfolio), Renaissance Technologies, Steven Cohen (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).

United Parcel Service

Generating a DCF fair value of $281.90, shares of United Parcel Service (UPS, Financial) trade with a margin of safety of 32.84%.

The Atlanta-based shipping and logistics company, also known as UPS, has a market capitalization of $164.21 billion; its shares were trading around $189.32 on Thursday with a price-to-earnings ratio of 12.84, a price-to-book ratio of 11.5 and a price-to-sales ratio of 1.69.

Based on the GF value line, the stock appears to be fairly valued right now.

GuruFocus rated UPS’s financial strength at 6 out of 10. In addition to a comfortable level of interest coverage, the Altman Z-Score of 4.44 indicates that it is in good standing, even though assets are falling. accumulate at a faster rate than income. ROIC also eclipses WACC, implying good value creation.

The company’s profitability scored 9 out of 10, driven by margins and returns that outperform the majority of its competitors. UPS also has a high Piotroski F-Score of 8 and, due to consistent profit and revenue growth, a three-star predictability ranking. Data from GuruFocus shows that companies with this ranking have an average return of 8.2% per year.

PRIMECAP Management (Trades, Portfolio) is UPS’s largest shareholder guru with a 0.32% stake. The T Rowe Price Equity Income Fund (Trades, Portfolio), Bill Gates’ Foundation Trust (Trades, Portfolio) and Simons’ company also hold large positions in the stock.

Wells Fargo

Shares of Wells Fargo (WFC, Financial) were trading at a 30.7% discount to fair value of $65.18.

The bank, headquartered in San Francisco, has a market capitalization of $171.23 billion; its shares were trading around $45.17 on Thursday with a price-to-earnings ratio of 9.38, a price-to-book ratio of 1.08 and a price-to-sales ratio of 2.32.

The GF value line suggests that the stock is currently valued at its fair value.

Wells Fargo’s financial strength was rated 3 out of 10 by GuruFocus as it is weighed down by low debt-related ratios.

The company’s profitability fared better with a rating of 6 out of 10, driven by margins and returns that outperform at least half of its industry peers, as well as a high Piotroski F-Score of 7. Steady earnings and revenue growth contributed to its 4.5-star predictability rank. According to GuruFocus, companies in this ranking have an average return of 10.6% per year.

Of the gurus invested in Wells Fargo, Dodge & Cox has the largest stake with 3.52% of the shares outstanding. PRIMECAP Management (Trades, Portfolio), Davis, Hotchkis & Wiley, Richard Pzena (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, the T. Rowe Price Equity Income Fund and Grantham, among others, also hold significant positions in the stock.

Globe Life

Globe Life (GL, Financial) is trading at a 26.93% discount to its DCF fair value of $139.30.

The McKinney, Texas-based insurance company, which provides health and life insurance products, has a market capitalization of $10.10 billion; its shares were trading around $101.79 on Thursday with a price-to-earnings ratio of 14.22, a price-to-book ratio of 1.17 and a price-to-sales ratio of 2.02.

According to the GF value line, the security is currently valued at its fair value.

GuruFocus rated Globe Life’s financial strength at 5 out of 10. Although the company has issued new long-term debt in recent years, it is at a manageable level due to sufficient interest coverage. WACC also exceeds ROIC, so the insurer struggles to create value.

The company’s profitability was rated 8 out of 10, as its margins and returns are overall better than its competitors. Globe Life also has a moderate Piotroski F-Score of 5, while consistent earnings and revenue growth has contributed to a five-star predictability ranking. GuruFocus found that companies in this ranking have an average annual return of 12.1%.

Buffett is the company’s largest shareholder guru with a 6.41% stake. Pzena, Ken Fisher (Businesses, Portfolio), Dalio and Jones are also owners of Globe Life.

Other undervalued holdings

Additional holdings in Buffett’s 44-stock equity portfolio at the end of Q4 2021 that are currently undervalued are US Bancorp

TBBK

TBBK
(USB, Financial), Floor & Décor Holdings Inc. (FND, Financial) and VeriSign

VRSN

VRSN
Inc. (VRSN, Financial).

Investors should be aware that 13F filings do not provide a complete picture of a company’s holdings as the reports only include positions in US stocks and US certificates of deposit, but they can still provide valuable insight. Additionally, reports only reflect trades and holdings as of the most recent portfolio deposit date, which may or may not be held by the reporting company today or even when this article was published.