Wanna Be a Value Investor? Follow Buffett & Play 2 ETF Areas

Sanghamitra Saha

Are you an ardent follower of investment guru Warren Buffett? Then you may find his latest bets to be intriguing investment areas.

Normally, Buffett takes interest in companies trading below what he believes is their intrinsic value. He aims long-term outperformance and apparently ignores short-term downturns. Probably this is why this investment veteran is now betting big on two value stocks, biotech giants Biogen BIIB and retailer Kroger KR. Both the stocks hold a top Value Score of A.

Notably, value investors like good stocks at great prices. The perception is that the lower the P/E or other valuation ratios like PEG or P/B, the higher will be the value of the stock. The logic behind this is that a stock’s current market price does not justify its higher expected earnings or book value and therefore has room to run.

Buffett Bets Big on Biotech Biggie Biogen

In a regulatory filing detailing its U.S.-listed investments as of Dec 31, Buffett’s Berkshire said it took a new 648,000-share stake in drug maker Biogen worth $192.4 million.

Biogen is one of the world’s leading biotechnology companies, which focuses on developing innovative therapies for treating serious neurological and neurodegenerative diseases. In late January, the company reported fourth-quarter results, wherein it beat on both the lines (read: Can Biotech ETFs Gain on Mixed Q4 Earnings Results?).

The stock beat earnings estimates in the past four quarters, the average being 9.33%. The stock currently has a Zacks Rank #3 (Hold) and belongs to a favorable Zacks industry (placed at the top 28% of 250+ industries).

Biogen has considerable exposure to ETFs like iShares Nasdaq Biotechnology ETF IBB, VanEck Vectors Biotech ETF BBH and iShares Evolved U.S. Innovative Healthcare ETF IEIH. IBB and BBH both have a Zacks Rank #2 (Buy) and make these funds a good proxy for Biogen investing. Notably, IBB, BBH and IEIH each has a P/E ratio of about 21x, slightly higher than the SPDR S&P 500 ETF Trust SPY’s 19.51x.

Retailer Kroger is Buffett’s Another Bet

Berkshire Hathaway also took position worth $549.1 million in Kroger Co. It is one of the nation’s largest grocery retailers. Further, it manufactures and processes certain food products that are sold in its supermarkets. The stock comes from a favorable Zacks industry (placed at the top 23% of 250+ industries) but it has a Zacks Rank #4 (Sell).

Kroger has invested heavily to expand online, refurbish stores and improve deliveries to compete with Walmart Inc WMT and Amazon.com Inc AMZN, per Reuters.

However, Kroger beat earnings expectations in the last two of four quarters, with the average positive surprise of 0.19%. If you are not satisfied with the earnings surprise history, you can bet on the Kroger-heavy ETF. This includes First Trust Nasdaq Retail ETF FTXD. The fund has a P/E ratio of17.77x (read: Retail ETFs Up on Q3 Earnings)..

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Biogen Inc. (BIIB) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
iShares Nasdaq Biotechnology ETF (IBB): ETF Research Reports
 
VanEck Vectors Biotech ETF (BBH): ETF Research Reports
 
First Trust NASDAQ Retail ETF (FTXD): ETF Research Reports
 
First Trust Consumer Staples AlphaDEX ETF (FXG): ETF Research Reports
 
iShares Evolved U.S. Innovative Healthcare ETF (IEIH): ETF Research Reports
 
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