How to Pick Great Value Stocks Like Warren Buffett

How to Pick Great Value Stocks Like Warren Buffett

Image: Bigstock Warren Buffett is a legend in stock investing.

We all know his story.

He started investing in stocks when he was just 11 years old. By the time he was 29, he was already a millionaire stock investor. In his 60’s, he became a billionaire stock investor.

Often, the biggest question people ask about Buffett is: how does he do it?

And, could I do it too?

Buffett has become rich by buying cheap or out of favor stocks, and holding them for years.

Sounds easy, right?

If it was, everyone would be able to do what Buffett has done.

However, Buffett does have some secrets that us mere mortal investors can deploy to help us pick great value stocks.

3 Secrets to Picking Great Value Stocks Like Buffett

1) Buy What You Know

Even investing legends have favorite products. Over the years, Berkshire Hathaway has collected a big roster of well-known companies including Dairy Queen, See’s Candy, and Burlington Northern railroad.

How many of these acquisitions were influenced by Buffett’s own preferences for the products?

Well, one of the longest owned stock positions in Berkshire’s stock portfolio is Coca-Cola, which Buffett first began buying in 1988.

Is it a coincidence that Coke is one of Warren Buffett’s favorite drinks? Over the last decade, Buffett has disclosed in interviews to both Fortune and the Financial Times that he drinks 5 cans of coke a day, favoring Diet or Cherry Coke.

Clearly, he’s a fan.

But you have to do more than just like a product, to buy the stock.

Buffett has always been an avid researcher and used to order the Annual Reports from companies, when they would send them to you in the mail, to check the financials. He used to have stacks of the reports piled in his garage.

So, what’s your favorite product or brand?We often have our fingers on the pulse of every day products and activities, or even of something that is used in our jobs, that might get overlooked by others.It’s a great way to find value stocks. 2) Buy Stocks on Sale This sounds so simple, right?For years, Buffett has been on the sidelines, waiting for a chance to buy stocks when they went on sale. But in March 2020 when the coronavirus pandemic hit, and the S&P 500 plunged over 20% within just 3 weeks, Buffett did not buy.Over the last 2 years, he was heavily criticized for not buying that dip.But now, two years later, with stocks having their worst start to a year in decades in 2022, along with the S&P 500 again in a bear market, Buffett has been buying.Continued . . .—————————————————————————————————— See ALL Zacks’ Long-Term Picks for Only $1 Confidently navigate today’s market with Zack’s private investment recommendations. These picks are based on the system that has more than doubled the market since 1988 (including bear markets) and which pointed investors to 29 double- and triple-digit winners this year alone.Starting today, for one month, you can follow these exclusive portfolios in real time from the best stocks under $10, to Warren Buffett-style value plays, and to high-paying dividend stocks. Total cost $1. No gimmicks.——————————————————————————————————Buffett believes in buying cheap, well-known companies with stellar earnings growth and solid free cash flows.In 2022, Buffett has stepped in with his biggest stock purchases in a decade, adding over $50 billion worth of Chevron and Occidental Petroleum to the Berkshire portfolio.These energy companies fit the bill perfectly, as they have single digit P/E ratios, earnings on the rise, and record free cash flows.And he keeps diving in for more. He dollar-cost-averaged into his Occidental Petroleum investment all summer long after the shares sold off. He now owns 27% of the company and has permission from government regulators to buy up to 50%.Buying stocks on sale is the easiest way to invest like Buffett. Any investor can search for value stocks by the classic fundamentals like P/E, PEG or Price-to-Sales ratios.If you had done so to start 2022, you would have seen buying opportunities in Chevron and Occidental Petroleum, like Buffett did.It doesn’t get any easier than that. 3) Learn to Pivot and Change Course Remember when Berkshire Hathaway owned IBM?Neither do I, but for 7 years, until 2018, Berkshire had a large position in the technology giant.Originally bought in 2011, Berkshire spent $10.7 billion, buying at the average price of $170 per share, to take a significant stake in the company.This was going to be Buffett’s big play into technology, an area he had famously avoided for decades.But it never really worked […]

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