Warren Buffett is the most iconic and well-known value investor in the world. Many investors look to follow in his footsteps and make the same moves that he makes. His strategy centers on looking for value and investing for the very long term. And so when quality stocks are down and trading at low multiples to their earnings and book value, he'd likely agree that they're good deals investors should consider buying.
Below are three stocks that would be good buys today based on Buffett's investing style.
1. Quest Diagnostics
Quest Diagnostics (DGX -0.26%) would be a good Buffett buy for multiple reasons. The diagnostics company performs testing and information services that help patients and doctors make informed decisions. It's a necessary business and one that's stable. That's no more evident than on Quest's financials -- over the past 10 years, the company's top line has been between $7.1 billion and $7.8 billion. There hasn't been a whole lot of volatility. Quest's bottom line has been a bit more variable, but the company's profit margin's been over 8% of sales for five straight years.
Not only is Quest consistent, but it's a good value buy. The stock currently trades at a price-to-earnings (P/E) ratio of around 14 as well as around two times its book value. Value investors like Buffett typically look for P/E to be 15 or below, while price-to-book multiples should normally be no more than 2.0. Quest ticks off those boxes as it has dipped 17% year to date, compared to the S&P 500 which has declined by 23%.
Although Buffett doesn't like to pay dividends, he likes investing in companies that do. And with a quarterly dividend of $0.56, investors can earn about 2.5% per year in dividend income from owning shares of Quest. This is more than investors can typically expect to earn from the average S&P 500 stock, which normally pays 2%. Quest has also increased its dividend payments over the years, and they've increased by 47% from the $0.38 that the company was paying investors five years ago.
2. JPMorgan Chase
JPMorgan Chase (JPM -0.81%) is one of Buffett's holdings today, so it wouldn't be a stretch to say that he would think the big bank stock being down around 30% since the start of the year is a good deal. Bank stocks are another stable, predictable type of investment that Buffett values. JPMorgan's revenue has been above $90 billion during each of the past 10 years, and in 2019 sales grew by 6% to $115.6 billion. The company's also enjoyed a profit margin of more than 20% for six straight years.
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Although low interest rates aren't a good sign for bank stocks, Buffett doesn't shy away from short-term concerns. While there's a lot of uncertainty today surrounding COVID-19 and the effect it'll have on the economy, Buffett bases his decision on the long term. And over the long term, JPMorgan will likely continue to produce strong numbers and benefit from a growing economy that's spending and lending. Today, however, may be a good time to lock in a low price for this top bank stock.
Shares of JPMorgan trade at about nine times their earnings today and a price-to-book multiple of around 1.3.
Like Quest, JPMorgan pays a dividend as well. Shareholders currently earn $0.90 every quarter, which yields 3.7% annually. Since the end of the financial crisis, the bank stock's consistently been increasing its dividend payments. In five years, they've more than doubled from the $0.44 that the company was paying investors in 2015.
3. Delta Air Lines
Delta Air Lines (DAL -1.83%) is another stock that's already in Buffett's portfolio. And despite concerns that COVID-19 may hurt the airline industry, Buffett recently told Yahoo Finance that he's not planning to sell any of his airline stocks. He's confident that the economy will recover from this, and that's why he's not overly concerned about the shares he owns in airline companies.
While the coronavirus pandemic will hurt Delta and other airline stocks in the short term, that doesn't make the company a bad buy. Delta's revenue has not just been stable; it's been growing. From $41 billion in 2014 to $47 billion this past year, revenue is up more than 15% over a five-year span. The airline's also posted a stable profit margin of more than 8% in each of those years.
The stock currently trades at a minuscule P/E of four and 1.3 times its book value. Those are very low valuations, as the stock's fallen 45% during just the first three months of 2020.
The company announced in March that it would be suspending dividend payments and share buybacks as a result of COVID-19. It's disappointing for investors, but it's a necessary step amid such uncertain times. But once there's a recovery, investors will likely see a dividend return as the economy becomes more stable.
Which stock is the best one to own today?
If you're investing for the long term, then any one of these stocks can look great in your portfolio. But due to its massive decline and very low valuation, Delta may be the most appealing stock to buy today. The company will pull out all the stops it needs to weather the storm relating to the coronavirus, and once the pandemic is over, the airline stock will see travelers return and its share price will recover as well. It's not a popular time to be buying airline stocks, but Foolish investors know that buying now can yield great results years from now.
