Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has been one of the greatest success stories in the history of American capitalism. For good reason, investors love to study undervalued Warren Buffett stocks to know what the genius businessman is up to.
Fortunately, Berkshire Hathaway files regular public statements and it has in fact disclosed all of its holdings through March 31, 2023. This allows us to take a sneak peek at what the conglomerate has been buying and selling lately.
We can learn a lot about long-term investment stocks from studying Buffett’s career. And in poring through Berkshire’s holdings today, these are the three undervalued Buffett stocks that stand out as strong buys for July 2023.
Citigroup (NYSE:C) is one of America’s large money-center banks. In addition to its massive retail branch footprint, Citigroup has a sizable investment banking operation and has significant operations in overseas markets as well.
Berkshire Hathaway owns more than 55 million shares of Citigroup stock, which adds up to a $2.5 billion position. That’s a big vote of confidence, and it’s especially meaningful as Warren Buffett has a strong reputation and influence in particular with his banking industry investments.
The big appeal is that Citigroup is trading at less than 0.5x book value. That’s a massive discount to where most of the other large American banks trade. Citigroup has had some operational issues and its reputation is fairly lackluster. There’s little denying that. However, the discount seems too large. That’s especially true as shares trade at 7 times earnings and offer a generous 4.5% dividend yield.
HP (NYSE:HPQ) is a technology company focused on hardware. The firm is primarily known for its HP computers and laptops along with its various printing solutions. It also runs HP Labs and is involved in business incubation and investment projects.
Investors might think of this as a declining business. PCs are hardly a growth market anymore, and printing has taken a backseat in an age of remote work and virtual document signing. However, HP’s business is holding in there. Revenues are actually up from $58 billion in 2018 to $62 billion in 2022. Profitability remains strong, with the company currently selling for less than 10 times forward earnings.
Berkshire Hathaway has built a massive position in HP, owning 121 million shares of stock. That makes up 12% of the entire company. Analysts may think HP is a company heading toward obsolescence. However, Warren Buffett has made a $4 billion bet on HPQ stock that says otherwise.
Diageo (NYSE:DEO) is one of the smaller positions in Berkshire Hathaway’s portfolio. Berkshire owns a modest $40 million stake in the spirits and beer giant. However, Berkshire should seriously consider increasing the size of that position.
Diageo shares a lot of similarities with long-time Buffett favorite Coca-Cola (NYSE:KO). Beer and spirits are an accessible luxury that people can afford to buy with regularity. Diageo’s brands are world-class with leading products such as Guinness, Johnnie Walker, Smirnoff, Don Julio, and many more.
Profit margins on these products are tremendous. And it’s hard for new competition to arrive, given the high regulatory thresholds to producing, marketing, and distributing alcohol. Brands have a lifespan measured in centuries; Guinness, for example, has been in business since 1759.
As for valuation, DEO stock has been suffering from a hangover over the past few years with the share price holding roughly flat since 2019. This has come even as earnings continue to grow. As a result, the firm’s forward P/E ratio is down to 21. The last time DEO stock was this cheap was back in late 2016, and shares proceeded to rally 50% over the next year. Things could be set for a similar run now.
On the date of publication, Ian Bezek held a long position in BRK-B and DEO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.