The overall market shows clear indications that it's priced at relatively rich levels right now. But smart investors willing to do a little digging will find that there are always at least a few undervalued stocks worth consideration.
The real difficulty though is finding undervalued names you want to buy and hold forever. These companies must be in true "forever" businesses. And, these companies must also be capable of adapting as needed. It's a taller order, to be sure.
Still, such stocks exist. Here's a rundown of three of the best undervalued "forever" stocks to think about buying sooner rather than later.
1. Delta Air Lines
It's been a lackluster past few years for Delta Air Lines(NYSE: DAL) shareholders. Although the stock's no longer falling since the initial COVID-19 pandemic-prompted tumble, DAL shares are still trading below their pre-pandemic peak. The market's seemingly waiting for the other shoe to drop, so to speak, which would again crimp demand for air travel services.
The thing is, we're now nearly four years removed from the worldwide shutdown of ... well, everything. The International Air Travel Association says last year's total passenger miles are essentially back to 2019's pre-pandemic levels, en route to new record levels this year, with new records also expected for the next several years. The industry's biggest challenge now is actually a lack of planes, with many airlines reluctant to fly new passenger jets manufactured by beleaguered Boeing.
Connect the dots. There is no other shoe that's going to drop. Most of the challenges Delta and its peers face now are nothing new, and nothing the business hasn't overcome in the past. The rest can be figured out, up to and including buying more new commercial aircraft from Boeing's rival Airbus.
Indeed, the long-term future looks very bright.
Putting the design problems with its 737 and 787 jets aside, aircraft company Boeing regularly updates its long-term outlook for air travel demand. In its most recent look at the matter, the company suggests the world will need 42,600 new commercial jets over the course of the next 20 years. To put this number in perspective, air travel market research outfit Oliver Wyman says there are roughly 27,000 passenger jets in service at this time. And most of the aircraft Boeing says will be made and sold within the next couple of decades should be purchased earlier rather than in the latter part of its forecast period.
This, of course, bodes well for Delta, which is already one of the biggest names in the air travel business. You can step into Delta stock while it's still priced at a mere 6.2 times next year's expected earnings of $7.54 per share.
2. Amgen
Most pharmaceutical companies are known for one or two (maybe three) blockbuster drugs. Eli Lilly is the name behind weight loss treatment Zepbound, for example, while cancer-fighting Keytruda accounts for nearly half of Merck's top line. That's just the norm of being in the pharma business.
Amgen(NASDAQ: AMGN), however, takes a somewhat different tack. It aims to develop or acquire lower-risk, less splashy drugs it knows it can market. Underscoring this idea is the fact that its best-selling product -- arthritis therapy Enbrel -- only generates about 15% of its revenue. Further underscoring the idea is that most investors would have a hard time naming a single drug of the two dozen drugs Amgen makes. The company's doing fine anyway. The strategy of remaining just a little bit off the radar has allowed Amgen to produce surprisingly stable revenue growth for years now.
AMGN Revenue (Quarterly) data by YCharts
Profit growth hasn't been quite as consistent, as the pharma outfit occasionally spends large sums of money to acquire promising drugs. For instance, Amgen recently spent $27.8 billion to purchase Horizon Therapeutics, primarily to add Horizon's inflammation therapies to the new parent company's drug portfolio.
Still, there's measurable long-term earnings growth being logged here, driving the stock higher.
There's also room and reason for further upside. Amgen stock is valued at a modest 21.4 times its trailing-12-month earnings, while its forward-looking price-to-earnings ratio is an even more modest 13.8. Newcomers will also be plugging in while the stock's dividend yield stands at an attractive 3.4%.
3. Berkshire Hathaway
Finally, add Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) to your short list of undervalued stocks to buy and hold forever.
OK, it's a stock that doesn't act like a normal stock. It's better described as a basket of stocks along with a basket of fully owned companies that were hand-picked by Warren Buffett and Berkshire's other managers, who are also hand-picked by Buffett. Because the Oracle of Omaha is still one of the world's most proven stock-pickers, Berkshire Hathaway shares regularly outperform the S&P 500.
That's not the only reason you might want to own a piece of Berkshire Hathaway, though. It's not even the biggest reason.
Berkshire holds large stakes in several compelling stocks, including Apple, Bank of America, and Coca-Cola. The bulk of Berkshire's value, however, actually comes from the huge number of privately owned businesses the conglomerate holds. These include underwear outfit Fruit of the Loom, railroad BNSF, GEICO insurance, Pilot Travel Centers, Duracell batteries, and Acme Brick Company, just to name a few. These privately held companies generate a great deal of reliable cash flow each and every year, even when the stock market itself isn't performing very well.
As Buffett explained in his most recent annual letter to Berkshire Hathway shareholders, the conglomerate booked $37.4 billion worth of real operating earnings in 2023, with most of it coming from these businesses. That's the ultimate basis for saying this company's shares are currently valued on the order of 20 times their per-share profits. That's pretty cheap, given this particular stock's history and underlying story.
It's worth noting that this consistent flow of operating income doesn't actually do Berkshire Hathaway's shareholders any good in real time. The stock doesn't pay dividends, after all, and probably never will. Rather, this earned cash is simply added to the fund's war chest, where it waits to be used on its next great opportunity once it appears. As of the end of last year, Berkshire was sitting on a record-breaking $167.6 billion. It could be a while before the right opportunity surfaces.
That doesn't mean Berkshire Hathaway shares can't perform well in the meantime, however. Again, it privately owns a bunch of cash-generating companies, as well as $372 billion worth of stocks, and the market understands how to price this mix. To this end, Berkshire shares have outperformed the broad market of late, even though the fund's biggest holding has actually lagged the S&P 500 in 2024.
Priced at more than $600,000 each, Berkshire's A shares aren't an option for someone looking to put $5,000 to work in some undervalued stocks. Consider the B shares instead, which are trading at a much more affordable $400 apiece.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Merck. The Motley Fool recommends Amgen and Delta Air Lines. The Motley Fool has a disclosure policy.
