Analyst: This Is What Warren Buffett Would Buy

Friday, 01 Mar 2013 10:36 AM

By Michael Kling

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In attempt to emulate his stellar record, investors closely follow what Warren Buffett does.

They can determine what his company, Berkshire Hathaway, holds by examining quarterly filings with the Securities and Exchange Commission. For instance, in the last quarter, Berkshire invested in Archer Daniels Midland and VeriSign, reduced its holdings in Johnson & Johnson and Kraft and increased its stock in IBM, General Motors, Wal-Mart and Wells Fargo.

Predicting what Buffett will do is harder than finding what he’s already done. But Thomson Reuters analyst John Kozey may have come close to that, according to Barron’s.

Editor's Note:
Use This Single Loophole to Pay Zero Taxes in 2013

Kozey screened stocks for attributes Buffett seeks: low debt, good valuations and growing revenues and profits.

To determine valuations, he used the EV/EBITDA ratio: enterprise value (EV), which adjusts the stock value for its debt and cash, divided by earnings before interest, taxes, depreciation and amortization (EBITDA).

The screening revealed 28 companies, according to Barron’s. One is Sysco, the largest food distributor in North America. It offers a 3.4 percent dividend yield, and analysts expect its revenues to increase 6 percent this year.

Another is Cummins, a truck engine manufacturer that can benefit from a long-term trend of increasing truck purchases driven by more construction in emerging markets. It has a 1.8 percent dividend yield that might soon rise.

In addition, the screening chose Illinois Tool Works, which has doubled in price over the last decade and has a 2.5 percent dividend, according to Barron’s. Now with over 800 decentralized divisions, the company is reducing its divisions and consolidating management, which could eventually boost profits.

Other stocks that made the cut are: Mosaic, Newmont Mining, PPG Industries, Air Products & Chemicals, Nucor, Eastman Chemical, Johnson Controls, General Mills, Hershey, Campbell Soup, Coca-Cola Enterprises, Baker Hughes, Transocean, CSX and Norfolk Southern.

Chances are that Buffett will make more large investments, as Berkshire has $48 billion to play with at last count, according to the Financial Times.

Remarking on the recent $23 billion purchase of Heinz, Buffett said he was “ready for another elephant, so if you see one walking by just tell me,” the Times notes.

Predicting his investments is difficult because his style has changed over the years, according to the Times. Initially, he chose extremely cheap stocks and businesses run by people he knew close to his Omaha, Nebr., headquarters, like Nebraska Furniture Mart. He then started seeking larger companies in the 1990s.

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2013

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