This Ridiculously Cheap Warren Buffett Stock Could Make You Richer

Investing legend Warren Buffett retired as Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) CEO, although he remains chairman. His successor, Greg Abel, has shown a greater willingness to put the company's large cash stockpile to work.

One of the new CEO's portfolio changes included purchasing shares of retailer Macy's (NYSE: M) during the first quarter. Berkshire Hathaway, which previously didn't have a position in the stock, bought over 3 million shares during the period.

Here's how following Berkshire Hathaway's lead and buying Macy's shares could increase your net worth.

Image source: Getty Images.

Iconic retailer on the upswing

Management launched a new strategy, called its Bold New Chapter, a couple of years ago. This involved improving the Macy's brand by focusing on its assortment of offerings, enhancing the shopping experience across channels, and closing unprofitable locations. It also planned to expand its luxury brands, Bloomingdale's and Bluemercury, by opening new locations.

Macy's has made progress, as shown by its sales growth. Last year, the company returned to positive same-store sales (comps), and that continued this year. Fiscal first-quarter comps grew 3.1%. Comps were higher across its Macy's, Bloomingdale's, and Bluemercury brands. Notably, the latter two had 10.2% and 6.4% comps' growth, respectively. The period ended on May 2.

Importantly, management increased its guidance for the year. It now projects comps to increase 0.5% to 1.2%, compared to the prior -0.5% to 0.5% expectation.

Stock remains a bargain

Investors have appreciated the improved results. Macy's shares have gained 85.7% over the last year, through July 2, trouncing the S&P 500 index's 19.2% appreciation.

Despite the stock price's surge and price-to-earnings ratio expansion, the shares still have an attractive valuation. The P/E ratio has gone from 6 to 10 over the last year. By comparison, that's less than one-third the S&P 500's P/E ratio of 32. Macy's P/E ratio is also much lower than the S&P 500 Consumer Discretionary index's P/E of 30.

It's challenging for retailers to reverse course, but Macy's appears to have done so, and it's on the right path. Meanwhile, while the valuation isn't as cheap as it once was, Macy's shares still represent an excellent value opportunity.

Luckily, you don't need an enormous cash stockpile to start buying the stock. And you can grow your small investment over time if Macy's continues executing its plan and the shares remain attractively valued.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.