Warren Buffett Sold These 4 Stocks – They’re Still Dirt Cheap

When Warren Buffett is selling, you’d better not be buying. Or at least, that’s how a lot of people think. Buffett is well known for having one of the best long-term investing track records in history. Other investors have achieved higher CAGR returns, but few have managed to keep up the high returns for a full six decades, like Buffett has.

For this reason, many people think that simply buying what Buffett is buying and selling what Buffett is selling is a good investment strategy. To put it bluntly, it’s not–and Buffett himself will tell you that. Investors hear about what Buffett has bought or sold when Berkshire Hathaway’s (BRK.B) 13Fs come out. That’s a full 45 days after the end of the most recent quarter. By the time you hear that Buffett has bought a stock, he may have sold it!

That doesn’t mean that Buffett stocks are worthless once he’s sold, though. To the contrary, many have done pretty well. In this article I will explore four Buffett stocks that remain “dirt cheap” long after “The Oracle’s” sales.

TSMC

Taiwan Semiconductor Manufacturing (TSM) is a stock Warren Buffett bought in late 2022. By the end of 2023’s first quarter, he had sold the stock. Charlie Munger reportedly wanted to keep holding it. The stock has traded sideways since Buffett sold it.

For a few quarters, TSM dealt with declining earnings. There was a slowdown in chip sales as a result of 2022’s smartphone and computer sales crash. This year, smartphone sales started rising again, and TSMC’s revenue started rising along with them. In November, TSMC revealed that its revenue grew 15.1% in October. It was the company’s first positive revenue growth figure since February.

TSM did not guide for positive growth after its third quarter earnings release came out. It said that it would earn $18.8 billion to $19.6 billion. If the company can do the same amount of sales it did in October in November and December, then Q4 revenue will come in at $23 billion. That would be a large beat.

TSMC is a fairly cheap stock, despite its newfound positive revenue growth. According to Seeking Alpha Quant, it trades at:

• 17.6 times earnings.

• 7 times sales.

• 4.5 times book value.

• 11.4 times operating cash flow.

Certainly not “dirt cheap,” but it’s reasonably cheap, plus TSM has considerable exposure to NVIDIA’s (NVDA) massive growth, without the steep price tag. It’s definitely a stock worth taking a look at.

Suncor Energy

Suncor Energy (SU)(SU:CA) is an energy stock that Warren Buffett has owned on again and off again over the years.

Suncor Energy’s earnings this year are, as you might expect, declining. Oil prices are down from their 2022 levels, so oil companies are making less money than they did last year. Suncor’s most recent earnings release showed declining revenue.

Warren Buffett sold his Suncor Energy stock close to $20, it has risen since then. There is little to suggest that this company’s earnings will recover to the peak 2022 level. However, the company has a 4.7% yield with only a 46% payout ratio–it can easily afford to keep paying its very generous dividend.

Suncor Energy stock is very cheap. At today’s prices, it trades at:

• 7.8 times earnings.

• 1.17 times sales.

• 1.4 times book value.

• 3.8 times operating cash flow.

These are pretty low multiples. Suncor has had low multiples for years but in late 2022, it fell anyway as oil prices declined. Many people early in 2022 were optimistic that oil prices would head to extraordinarily highs because of the war in Ukraine. That did happen, but it didn’t last very long. The reduction in supply from Russia never got as bad as feared, and much of the run up to $123 was caused by people hedging in the futures market. Suncor and stocks like it will probably not rise to the extreme highs that people fantasized about last year, but they’ll likely be able to pay their (frequently high) dividends well into the future.

Verizon

Not many people know that Warren Buffett once bought a stake in Verizon (VZ) on the dip, but indeed he did. He accumulated a position in 2022 only to sell the shares a few months later. Buffett’s sale appears to have been well timed, as VZ’s stock price is currently down from even the lowest levels it traded at in 2022.

The problems with Verizon are well known. The stock is heavily indebted, has large interest expenses, and will incur even larger interest expenses if interest rates rise, as a significant portion of its debt is variable rate. These are all serious issues for Verizon as a company. The thing is, the stock is so cheap at this point that a lot of it is arguably priced in. At today’s prices, VZ trades at:

• 7.8 times earnings.

• 1.2 times sales.

• 1.4 times book value.

• 4 times operating cash flow.

• 11.5 times free cash flow.

Speaking of free cash flow: if you take VZ’s trailing 12 month FCF per share ($3.25) and discount it at the 10 year treasury yield, you get a $78 price target. Discount it at the 10 year treasury yield plus a 5% risk premium, and you get a $34.45 price target. Both of these calculations assume 0% perpetual growth. The average of these two fair value estimates is $56, so given a moderate amount of risk, VZ stock has upside. Also, regardless of where VZ’s stock price goes, its dividend yields 7.12% with a mere 56% payout ratio. Finally, the latest CPI report showed only 3.2% inflation; if inflation keeps coming down then the Fed won’t need to hike rates any further. There’s reason for optimism on that front as oil prices recently fell dramatically from their recent concerning rally to $95.

Delta Air Lines

Delta Air Lines (DAL) is easily the most controversial stock on this list. Warren Buffett bought this one on the dip early in the March 2020 COVID crash, then sold at the lows. He incurred a massive loss on the buy–one of his worst in recent memory.

I’ll stop short of calling a stock as hated as DAL “a buy.” Some stocks have such bad reputations that singing their praises risks exposing oneself to embarrassment. However, I will say that Delta, at today’s prices, is at least optically cheap.

At today’s prices, DAL stock trades at:

• 5.5 times earnings.

• 0.4 times sales.

• 2.5 times book value.

• 3.2 times operating cash flow.

• 19 times free cash flow.

The free cash flow multiple is a little high, but the others are quite low.

Why is Delta’s free cash flow multiple high? Looking at the cash flow statement, it appears that a big increase in investments is the main culprit. The company spent $5.9 billion on capital expenditures in the trailing 12 month period, and made a $1.6 billion investment in marketable securities. These capital expenditures were higher than the historical norm: the largest capital expenditure spend in the five years prior to 2020 was $5.1 billion. If Delta can get its spending back to the historical trend, then its free cash flow will increase.

I must stress that my mention of Delta Air Lines is not quite an endorsement. I think that TSM and SU are good buys, and Verizon a moderately good one. Delta will need to get its costs down to become a good investment. It is, however, one of the cheapest large cap stocks around going by some metrics. So it is worth monitoring for future improvements. As for the other three stocks mentioned in this article: I would happily buy them; I own TSM presently, and traded SU profitably in the past.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.