Warren Buffett is arguably among the greatest investors in the world. Also called the Oracle of Omaha, Buffett created massive wealth in the past six decades and is one of the wealthiest individuals globally.
A fan of value investing, Buffett aims to purchase fundamentally strong stocks trading at a cheap valuation, allowing him to benefit from outsized gains over time.
Here are two such underrated Warren Buffett stocks that are smart buys right now.
StoneCo stock
Trading 88% below all-time highs, StoneCo (NASDAQ: STNE) is a fintech company valued at US$3.6 billion by market cap. A Brazil-based entity, StoneCo provides financial technology and software solutions to merchants and integrated partners. It serves close to three million clients, including small and medium businesses, e-commerce platforms, and integrated software vendors.
Brazil is among the fastest-growing e-commerce markets in the Americas and boasts a population of 214 million. The country’s e-commerce sales are forecast to grow to US$274.5 billion in 2023, an increase of 27% year over year, allowing StoneCo to drive top-line growth in the near term.
In the second quarter (Q2) of 2023, StoneCo increased revenue by 28% year over year while it reported a net income of US$61.6 million compared to a loss of US$98.1 million in the year-ago period.
Its stellar sales growth allowed StoneCo to benefit from high operating leverage and improve profit margins significantly. For instance, its EBIT (earnings before interest and tax) margin surged to 15.1% in Q2, up from just 3.3% last year.
Analysts tracking STNE stock expect revenue to grow from US$1.95 billion in 2022 to US$2.64 billion in 2024. Comparatively, adjusted earnings are forecast to improve from US$0.35 per share to US$0.97 per share in this period.
Priced at 12 times forward earnings and 1.3 times forward sales, StoneCo is among the cheapest growth stocks today. Analysts tracking the stock expect shares to surge around 35% in the next 12 months.
Occidental Petroleum stock
Warren Buffett’s Berkshire Hathaway has been consistently increasing its position in oil and gas stock Occidental Petroleum (NYSE: OXY) since the start of 2022. Berkshire purchased 12.4 million shares of OXY in Q2 of 2023 and currently holds 224 million shares of the energy giant, valued at $14.5 billion.
Occidental Petroleum operates energy and chemical assets in the U.S., the Middle East, Africa, and Latin America. Armed with a portfolio of high-quality assets, OXY has a blend of short-cycle, high-return share assets. Around 60% of its oil and gas production originates from shale reservoirs, while the rest comes from conventional drilling.
Occidental Petroleum emphasizes its conventional oil and gas assets provide it with support during low-price cycles while shale assets provide the opportunity for growth amidst moderate and high-price cycles.
Priced at 18 times forward earnings, OXY might seem expensive compared to other energy stocks. But its adjusted earnings are also forecast to improve from $3.67 per share in 2023 to $5.08 per share in 2024.
OXY also pays shareholders a quarterly dividend of $0.18 per share, indicating a yield of 1.2%. These payouts have risen 38.5% in the last year.
