Berkshire Hathaway BRK.A BRK.B released its fourth-quarter 2022 13-F earlier this week, which means it’s time to scour Berkshire’s latest portfolio for undervalued Warren Buffett stock picks.

The US stock market enjoyed a bit of a bounceback in the fourth quarter last year; the Morningstar US Market Index was up about 7%. Perhaps not surprisingly, Berkshire sold close to $10 billion worth of stocks on a net basis during the quarter, reports Morningstar strategist Greggory Warren. Berkshire’s biggest sales, according to Morningstar’s Warren: eliminating 86% of its stake in Taiwan Semiconductor TSM, 91% of its position in U.S. Bancorp USB, and 60% of its stake in Bank of New York Mellon BK. On the purchase side, Buffett and his team added to their positions in Apple AAPL, Occidental Petroleum OXY, Louisiana-Pacific LPX, and Paramount Global PARA, among others.

Many of the publicly traded stocks held in Berkshire Hathaway—both new purchases and existing positions—are fairly valued or overvalued, according to Morningstar’s metrics.

3 Warren Buffett Stock Picks

These stocks were among Berkshire Hathaway’s holdings heading into 2023—and these stocks look undervalued today based on Morningstar’s metrics:

1) General Motors GM

2) Citigroup C

3) Kraft Heinz KHC

Here’s a little bit about why we like each of these stocks at these prices, along with some key metrics for each. All data is as of Feb. 14, 2023.

General Motors Stock

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: None
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Auto Manufacturers

The market keeps underestimating this longtime Warren Buffett stock pick. GM finished 2022 strong and shared 2023 guidance that is well above consensus estimates. Morningstar thinks that overdone recession fears have left GM stock significantly undervalued: We assign GM stock a $78 fair value estimate, and shares are trading about 45% below that.

Here’s what Morningstar strategist David Whiston thinks of GM today:

“We see General Motors with a competitive lineup in all segments it competes in, combined with a reduced cost base, finally enabling it to have the scale to match its size. We think GM’s earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial. Moving hourly workers’ retiree healthcare to a separate fund and closing plants drastically lowered GM North America’s breakeven point to U.S. industry sales of about 10 million-11 million vehicles, assuming 18%-19% share. We expect more scale to come from GM moving its production onto vehicle sets over the next few years and a joint venture making EV batteries for even more flexibility and scale.

GM makes products that consumers are willing to pay more for than in the past. It no longer has to overproduce trying to cover high labor costs and then dump cars into rental fleets (which hurts residual values). GM now operates in a demand-pull model where it can produce only to meet demand and is structured to do no worse than break even at the bottom of an economic cycle when plants can be open. The result is higher profits than under old GM despite lower U.S. share. It now seeks roughly $300 billion in total revenue by 2030 with about $80 billion from many new high-margin businesses such as insurance, subscriptions, and selling data, while targeting 2030 total company adjusted EBIT margin of 12%-14%, up from 9.2% in 2022, 11.3% in 2021, and 7.9% in 2020.

We think actions such as buying Cruise, along with GM’s connectivity and data-gathering via OnStar, position GM well for this new era. Cruise is offering autonomous ride-hailing with its Origin vehicle, and GM targets $50 billion of Cruise revenue in 2030 after just $1 billion targeted in 2025. GM is investing over $35 billion in battery electric and autonomous vehicles for 2020-25 and is launching 30 BEVs through 2025 with two thirds of them available in North America. Management also targets over 2 million annual BEV sales by mid-decade and in early 2021 announced the ambition to only sell zero-emission vehicles globally by 2035.”

Citigroup Stock

  • Morningstar Rating: 5 stars
  • Morningstar Economic Moat Rating: None
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Banks—Diversified

This Warren Buffett stock pick was initially purchased during the first quarter of 2022. Morningstar thinks Citigroup is a work in progress: The bank is in the midst of refocusing on its core international corporate banking unit and its North American consumer and global wealth businesses. The bank’s complex story has weighed on its stock price: We think Citigroup stock is worth $75, and it’s trading in 5-star range as of this writing, suggesting that it’s significantly undervalued. In fact, Citigroup stock is a top pick among Morningstar’s analysts.

Here’s what Morningstar strategist Eric Compton has to say about Citi:

“Citigroup is currently in the middle of a major turnaround and remains a complex story. The bank is working through consent orders from regulators, selling off its international consumer operations, and refocusing on its wealth unit. This should make the bank easier to understand and structurally more focused, however, we think Citi will still structurally trail its peers from a profitability standpoint and struggle to outearn its cost of capital. The wealth space remains as competitive as ever, as does the card space, and we don’t see the bank building up a retail presence to rival its peers.

While Citi’s issues are real, we still see room for an improved valuation. The bank will need to prove it can bring core costs down after 2023. Combined with some growth and profitability out of ICG and cards, and any momentum in wealth, and there is a path toward earning its cost of capital. This would miss all of management’s targets, but shares are priced even worse. Working through their consent orders and a lower discount rate demanded by investors from simplified operations would also help.”

Kraft Heinz Stock

  • Morningstar Rating: 4 stars
  • Morningstar Economic Moat Rating: None
  • Morningstar Capital Allocation Rating: Standard
  • Industry: Packaged Foods

Kraft Heinz has been a staple in Berkshire Hathaway in some form for a decade. Buffett acquired H.J. Heinz in 2013 and, two years later, facilitated the merger between H.J. Heinz and Kraft Foods Group. Although Kraft Heinz’s portfolio includes well-known namesake brands as well as Oscar Mayer, Velveeta, and Philadelphia, Morningstar doesn’t think the company has carved out an economic moat. But we do think that Kraft Heinz stock is undervalued, trading 23% below our $52 fair value estimate.

Here’s Morningstar director Erin Lash’s outlook on the business:

“Like its peers, Kraft Heinz benefited from consumers’ penchant for eating at home during the pandemic, with 85% of its sales driven through the retail channel, and could again if consumers resort to at-home food consumption against a more challenging economic backdrop. If household penetration and repeat purchases are a guide, we posit its revamped road map is proving prudent. In this context, CEO Miguel Patricio has charged the firm to pursue efficiencies that will prove lasting, elevate brand spending (marketing and product innovation), enhance capabilities (category management and e-commerce), and leverage its scale to more nimbly respond to changing market conditions, which we perceive as judicious.

Within this, we think Kraft Heinz has abandoned its prior mantra of inflating profits at any cost in favor of consistently driving profitable growth. While the firm intends to realize $2 billion in efficiency savings through 2024 (including $400 million in fiscal 2022), it appears to be doing so as a way to free up resources to reinvest in its product mix rather than bolster profits. And even as stepped-up angst from broad-based inflationary headwinds (commodities, labor, packaging, and transportation, which management now pegs at a 20% uptick in fiscal 2022, on top of a low-double-digit increase last year) is beleaguering its consumer product peers, Kraft Heinz appears to be taking these pressures in stride. Beyond looking to surgically extract inefficiencies from the business, it is also selectively raising prices (and will likely continue to do so). But it isn’t relenting on its focus to more effectively fuel marketing spending, targeting a 30% increase in marketing between fiscal 2020 and 2024, which we think stands to support its brand mix and its retail relationships. From our vantage point, these efforts are being aided by its decision to narrow its stock-keeping unit count, which was down 20% in North America the past couple of years. When taken together, our forecast calls for research, development, and marketing to amount to 6% of sales annually on average the next 10 years, or around $1.7 billion, up from an 4.5% average the past five years.”

More About Warren Buffett Stock Picks

Warren Buffett has said that he doesn’t consider himself to be a stock-picker; instead, he’s a company-picker. That comment pretty much encapsulates how he thinks about stocks: They’re parts of businesses. Learn more about how the Oracle of Omaha chooses companies to buy in “How to Invest Like Warren Buffett.” And read about his influence on how Morningstar evaluates companies and rates stocks in “What We’ve Learned From Warren Buffett and Charlie Munger.”