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Buffett Believes Stocks are Overvalued? Buy These Bargains

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Berkshire Hathaway Inc. (BRK.B - Free Report) CEO Warren Buffett is undoubtedly one of the biggest role models for any investor. After getting into the investment game pretty early, Buffett has quite successfully transformed his initial $10,000 of investments to more than $89 billion in just around six decades.

Buffett’s investing style is, in fact, quite simple — he believes in the buy-and-hold philosophy. Buffett looks for companies with long-term competitive advantages, which can be purchased and held for an extended period of time.

These companies have solid business models and the ability to record significant growth. In other words, these companies have good earnings potential and are not concerned about the market recognizing its worth. These companies also generate plenty of cash and provide dividends, which underscore its underlying strength and sustainable business model.

Notably, investors can easily look into Berkshire’s quarterly 13F filings with the Securities and Exchange Commission and try to gauge what the greatest mind on Wall Street is up to. In fact, Berkshire has filed its latest 13F for the fourth quarter on Feb 14. However, the findings aren’t encouraging. This is because with regard to valuations of businesses, Buffett has shown decent long-term prospects instead of previous sky-high expectations — a tell-tale sign that stock valuations are stretched at the moment.

Lest we forget that in the fourth quarter, Buffett has sold stocks worth more than what he purchased. Buffett has sold nearly $7 billion worth of stock during the fourth quarter, which is four times more the amount of stock he purchased. He has sold a number of shares including those of Wells Fargo & Company (WFC - Free Report) , The Goldman Sachs Group, Inc. (GS - Free Report) , Apple Inc. (AAPL - Free Report) and Bank of America Corporation (BAC - Free Report) . And that’s pretty much more than the $1.58 billion worth of stock that Berkshire purchased. Notably, Berkshire has newly added The Kroger Co. (KR - Free Report) to its portfolio.

Nonetheless, Buffett still remains a net seller of equities. After all, Berkshire’s cash continues to pile as the company keeps itself away from any potential acquisition for almost four years. But not all company’s valuations are stretched. In fact, there are quality value stocks that are perceived to be “bargains” or are undervalued. And since the broader economy is doing pretty well, these stocks will certainly exhibit continued profitability and surge ahead on its innate strength. Thus, such stocks certainly make compelling investment choices!

Both domestic manufacturing and service activities increased recently, and the labor market continues to remain on a solid footing — a clear sign that the economy is doing well despite the emergence of the deadly coronavirus. What’s more, the Fed is expected to keep its monetary policy on hold after trimming rates three consecutive times last year to stimulate the economy. Fed Chair Jerome Powell had said that there is no immediate need to increase the federal fund’s rate unless there is a constant upward movement in inflation.

Invest in These 4 Bargain Stocks Now

Thanks to our new style score system, we have been able to identify four value stocks. Our research shows that stocks with a Value Score of A or B when combined a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best opportunities in the value investing space.

Brighthouse Financial, Inc. (BHF - Free Report) provides annuity and life insurance products in the United States. The company, currently, has a Zacks Rank #2 and a Value Score of A. The Zacks Consensus Estimate for its current year earnings increased 2.3% over the past 60 days.

Brighthouse Financial has a price-to-earnings ratio (P/E) of 4.63, compared with 14.60 for the industry. The company’s expected earnings growth rate for the current quarter is 18.2%.

Citigroup Inc. (C - Free Report) provides various financial products and services for consumers, corporations, governments, and institutions. The company, currently, has a Zacks Rank #2 and a Value Score of B. The Zacks Consensus Estimate for its current year earnings increased 2.1% over the past 60 days.

Citigroup has a price-to-earnings ratio (P/E) of 9.10, compared with 11.50 for the industry. The company’s expected earnings growth rate for the current quarter and year are 15% and 14.3%, respectively.

Brinker International, Inc. (EAT - Free Report) owns, develops, operates, and franchises casual dining restaurants. The company, currently, has a Zacks Rank #2 and a Value Score of A. The Zacks Consensus Estimate for its current year earnings increased 2.1% over the past 60 days.

Brinker International has a price-to-earnings ratio (P/E) of 9.61, compared with 28.30 for the industry. The company’s expected earnings growth rate for the current quarter and year are 11.9% and 10.2%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Genesco Inc. (GCO - Free Report) operates as a retailer and wholesaler of footwear, apparel, and accessories. The company, currently, has a Zacks Rank #1 and a Value Score of A. The Zacks Consensus Estimate for its current year earnings increased 0.7% over the past 60 days.

Genesco has a price-to-earnings ratio (P/E) of 8.08, compared with 13.10 for the industry. The company’s expected earnings growth rate for the current quarter and year are 13.8% and 30.5%, respectively.

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