This Overlooked Warren Buffett Stock Is Absurdly Cheap Right Now

Investors who have not looked at Berkshire Hathaway lately may be surprised to see Macy's (NYSE: M) listed as one of its holdings. Berkshire took an interest in the retailer at a time when it struggled with high overhead, lower mall traffic, and declining sales.

Nonetheless, Berkshire's management team has added shares while the investment giant has been a net seller of stocks. This is likely because the retail stock is "absurdly cheap," and the reasons go well beyond a low price-to-earnings (P/E) ratio.

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The Macy's purchase

Although Greg Abel now runs Berkshire, the buy looks like something out of the playbook of his predecessor, Warren Buffett. Indeed, Buffett's teasing about a "tiny investment" he made in March suggested he had a hand in this purchase.

As previously implied, its P/E ratio of 10, which had fallen as low as 7.5 during the first quarter of 2026, makes it a bargain on the surface and may have played a role in attracting Berkshire's interest.

However, Macy's' financial position may also contribute to its low valuation. It operates with some success as a mid-tier to upscale retailer at a time when peers such as JCPenney and Neiman Marcus have declared bankruptcy. Another competitor, Kohl's, has experienced years of sales declines.

In comparison, other types of stores have prospered. Retailers such as Walmart and Costco trade at more than 40 times earnings. Also, Target, which has faced challenges of its own in recent years, trades at an 18 P/E ratio.

Knowing that, Macy's is an unequivocal bargain.

Looking beyond the P/E ratio

Also, investors who look beyond the earnings multiple may perceive it as a bargain in other respects.

One reason is a recovery in sales growth. After declining in 2025, Macy's had its strongest Q1 in four years. Its net sales rose in the first quarter of fiscal 2026 (ended May 2) and raised its net sales guidance for the fiscal year. As a result, its comparable sales for fiscal 2026, which it previously expected to be flat at the midpoint, are now expected to rise between 0.5% and 1.2%.

Moreover, unlike many of its competitors, Macy's owns much of its real estate. Thor Equities and Barington Capital estimate that Macy's holds up to $9 billion in real estate holdings. Since its market cap is around $6.7 billion, investors can buy its asset base at a considerable discount if the estimate is accurate.

Additionally, it pays a yearly dividend of almost $0.77 per share, a yield of about 3%, far above the 1% average for the S&P 500. (SNPINDEX: ^GSPC). It also can likely sustain this dividend as it recently increased the payout by 5%. Even after the increase, the payout cost Macy's $196 million over the trailing 12 months, a small percentage of the more than $1.4 billion in free cash flow the company generated during the same period.

Admittedly, even with the recent increase, the payout remains below the $1.51-per-share annual payout it maintained before the pandemic. Nonetheless, the dividend pays investors to wait for a recovery, which appears increasingly likely amid the renewed sales growth.

Berkshire Hathaway and Macy's stock

If one wants an inexpensive, overlooked stock likely backed by Warren Buffett himself, they should probably look no further than Macy's stock. The company has struggled amid changing consumer tastes and evolving shopping patterns. However, the stock is cheap because the selling has gone so far that the company's market cap has likely fallen below the intrinsic value of its real estate.

Moreover, Macy's appears to have found its footing as sales growth has turned positive. With a dividend yield that exceeds 3% and a payout on the rise, Macy's looks like an increasingly attractive dividend stock.

Ultimately, as growth returns, the stock could better reflect the company's intrinsic value, making Macy's an excellent growth and income stock.

Will Healy has positions in Berkshire Hathaway and Target. The Motley Fool has positions in and recommends Berkshire Hathaway, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.