The S&P/TSX Composite Index was down over 200 points in early afternoon trading on February 25. Warren Buffett has remained liquid over the course of the pandemic. The Buffett Indicator, which is one of his favourite market measurements, tracks the ratio of total stock market valuation to GDP. This indicator has soared to an all-time high in the United States in early 2021. Instead of taking a risk on overheated equities, investors should look to discounts. Today, I want to look at three value stocks that are in Buffett’s wheelhouse.
Warren Buffett has turned from gold, but that doesn’t mean you should
In November 2020, I’d discussed Warren Buffett’s turn away from gold. Berkshire Hathaway purchased a $500 million stake in Barrick Gold (TSX:ABX)(NYSE:GOLD) in the thick of gold’s bull run in 2020. However, Berkshire backed down from this investment in Q3 2020, shedding over 40% of its Barrick stake.
Investors should pay close attention to the Buffett Indicator. However, I’m not on board with straying away from gold. If anything, equities linked to the yellow metal look discounted right now. Barrick Gold qualifies as a value stock in this environment. Its revenues and earnings have surged as the spot price of gold has surged.
Shares of Barrick Gold were down 1.7% in early afternoon trading on February 25. The gold stock last had an RSI of 26, putting it in technically oversold territory. Moreover, it possesses a favourable price-to-earnings (P/E) ratio of 15.
This future dividend king is undervalued
Fortis (TSX:FTS)(NYSE:FTS) is another value stock that fits with the Warren Buffett investing framework. It is one of the top utilities holding companies in Canada. Shares of Fortis have dropped 5.6% in 2021 so far. Last year, I’d discussed why I’m hanging onto this value stock for the long term.
The utility posted solid results in 2020 in the face of the pandemic. It also announced that it had bolstered its five-year capital plan, which aims to significantly expand its rate base. This, in turn, will support annual dividend growth of 6% through 2024. Fortis has already delivered 47 consecutive years of dividend growth. It is close to becoming the first dividend king on the TSX.
Shares of Fortis last had a favourable P/E ratio of 18. Moreover, it has an RSI of 30. This puts it just outside oversold levels. Investors who want to emulate Warren Buffett should consider this value stock today.
Emulate Warren Buffett and stash one more value stock
Rogers Communications (TSX:RCI.B)(NYSE:RCI) is one of the top telecoms in Canada. Shares of Rogers have fallen 9.2% in 2021 so far. The stock is down 14% year over year. The company’s sales took a hit in the fourth quarter, as roaming fees were hurt by the lockdown in Canada. Moreover, its media business suffered to the decline in live sports broadcasting. Fortunately, it is progressing well with its 5G development.
Shares of Rogers last had a solid P/E ratio of 17. Meanwhile, this value stock possesses an RSI of 26 at the time of this writing. This puts the stock in technically oversold territory. Warren Buffett would gravitate toward this dividend stock on the TSX.
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Fool contributor Ambrose O’Callaghan owns shares of FORTIS INC. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends FORTIS INC and ROGERS COMMUNICATIONS INC. CL B NV and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).
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