Three Value Stocks for 2026: Assessing Moats, Cash Flows, and Margins of Safety

The era of Warren Buffett as CEO has officially ended. At age 95, the Oracle of Omaha has stepped down, concluding a 60-year journey that transformed Berkshire Hathaway from a roughly $25 million company into a trillion-dollar behemoth. For a value investor, the critical question is not whether the founder is still at the helm, but whether the underlying business moats and the capital allocation engine can continue to compound without him.

The good news is that Berkshire's value was never solely tied to its founder. The company is a vast conglomerate of operating businesses, many of which have long operated with significant autonomy. Key cash generators like GEICO, Burlington Northern Santa Fe, and Berkshire Hathaway Energy will continue their work largely unchanged. This structural independence is the first line of defense for intrinsic value. The company's scale and diversity provide a wide moat against disruption, but the durability of that moat depends on the quality of these operating subsidiaries and their management.

The new steward, Greg Abel, brings deep operational experience and was handpicked by Buffett. Yet his track record in deploying capital at Berkshire's immense scale is untested. The primary risk for the post-Buffett era is a prolonged period of subpar returns on capital. This would directly erode the compounding engine that defines Berkshire's appeal. The company's recent cash flow history underscores this vulnerability. Annual free cash flow declined 61% from $29.8 billion in 2023 to $11.6 billion in 2024. While this volatility is partly due to the massive, lumpy nature of its insurance and investment activities, it highlights the challenge of consistently generating high returns from a colossal capital base.

Berkshire's current war chest offers a buffer. As of late 2025, the company held $382 billion in cash and equivalents. This provides immense flexibility for future capital allocation, whether through strategic acquisitions, stock buybacks, or funding its subsidiaries. The discipline to deploy this capital wisely, however, is the ultimate test. Buffett built his legacy on patience and a margin of safety. The value of Berkshire Hathaway now rests on whether Greg Abel and the team can uphold that same standard, ensuring the next chapter compounds value just as effectively as the last.

Visa: The Payment Network Moat and Valuation

Visa stands as a classic example of a durable competitive moat in action. The company operates a "network of networks" that facilitates trillions of dollars in commerce annually. This structure creates powerful, self-reinforcing network effects: more merchants accept Visa, making it more valuable to cardholders, which in turn attracts more merchants. This lock-in is the foundation of its pricing power and long-term cash flow predictability.

Financially, the company continues to demonstrate exceptional efficiency. In fiscal 2025, Visa reported annual net revenue of $40.0 billion, with an adjusted operating margin of 66.4%. More recently, in the fourth quarter, data processing revenue grew 17%, and higher-margin cross-border volume rose 12%. These figures signal enhanced network utility and a shift toward more profitable transaction types, even as the broader economy faces uncertainty.

The current valuation presents a potential margin of safety. While the stock has been volatile, it is now 43% cheaper based on its P/S ratio compared to a year ago. This discount comes despite the company's strong fundamentals, including a long-term operating cash flow margin near 59%. For a value investor, a high-quality business trading at a meaningful discount to its recent valuation is a setup worth examining.

Yet the primary risk is not operational-it is regulatory. The company's dominance has drawn consistent scrutiny. The recent reintroduction of the Credit Card Competition Act has sparked fresh volatility, a reminder that its business model is not immune to political headwinds. This is the classic trade-off for a wide moat: it attracts both customers and regulators. The stock's resilience through past crises, including a 52% drop during the Global Financial Crisis, suggests it can weather storms. But for a disciplined investor, the margin of safety must account for the possibility of a sudden, material change in the regulatory landscape.

Chubb: The Insurance Moat and Earnings Catalyst

For a value investor, Chubb represents a classic insurance play: a company with a durable competitive moat, a disciplined capital structure, and a clear catalyst on the horizon. The business model is built on underwriting risk and investment income, two engines that can compound over long cycles if managed prudently. The recent upgrade to a "strong-buy" rating by HSBC underscores the market's recognition of its quality, even as the stock has lagged broader indices.

Financially, Chubb operates with a solid, if not spectacular, margin of safety. The company trades at a forward P/E of 11.89, which is a premium to its industry's 10.45 but reasonable for a leader. More telling is the PEG ratio of 3.21, which accounts for expected earnings growth. This suggests the market is pricing in a steady, if unspectacular, expansion. The company's recent quarterly results show resilience, with earnings per share of $7.49 topping estimates by a wide margin. The upcoming earnings report on February 3, 2026, is the immediate catalyst. Analysts expect year-over-year earnings growth of 6.48% for the quarter, a figure that would continue the recent trend of profitable execution.

Yet the core risk for any insurer is a deterioration in the economic environment. A credit downturn would pressure both underwriting results and investment income. The recent economic outlook highlights this vulnerability, with voices warning of "an impending credit downturn" and heightened refinancing risk. For Chubb, this is the classic headwind that tests the strength of its moat. Its ability to maintain underwriting discipline and navigate a tougher investment landscape will be the true measure of its durability.

The stock's recent performance offers a potential margin of safety. In the latest session, Chubb's shares lagged the S&P 500's daily loss, and over the past month, they have underperformed both the finance sector and the broader market. This relative weakness, juxtaposed with a strong earnings catalyst and a high-quality business, creates a setup where the stock may be pricing in more risk than the fundamentals currently suggest. The value lies in whether Chubb's operational moat can continue to generate cash flow through the cycle, turning the upcoming earnings report into a signal of long-term compounding power rather than a short-term beat.