5 Buffett picks with big upside

11:00 AM Buffett, picks, upside No Comments

Business Week | By Meena Krishnamsetty and Matt Doiron, MarketWatch

Here are the largest holdings by Berkshire Hathaway as of March 30 that had value-investor appeal due to their low P/E-to-growth ratios.

Warren Buffett's holding company, Berkshire Hathaway (BRK.A), filed its first-quarter 13F with the Securities and Exchange Commission last month. We've found that 13Fs can be used to develop profitable investment strategies -- for example, the most popular small-cap stocks among hedge funds generate an average excess return of 18 percentage points per year).

And it's always useful to examine moves by Buffet, given his track record in unearthing value in the market.

We also like to screen filings from investors like Buffett to find stocks that satisfy various investment criteria, such as those with low P/E-to-growth (PEG) ratios. The PEG ratio combines the price-to-earnings multiple with analyst expectations for future growth rates, and while analyst forecasts are frequently inaccurate, the ratio offers a way to estimate a stock's upside potential.

Here's a quick take on the five largest holdings in the Oracle of Omaha's investment vehicle at the end of the first quarter that had five-year PEG ratios of 0.9 or lower.

The holding company increased its stake in DirecTV (DTV) by 10% during the first quarter of 2013, to a total of over 37 million shares. With a trailing earnings multiple of 13 and with the sell-side predicting high earnings growth at the satellite TV company, the PEG ratio comes in well below 1.

However, we'd note that revenue grew only 8% last quarter compared with the first quarter of 2012 with earnings actually declining. DirecTV was one of the top picks in Southeastern Asset Management's portfolio; that mutual fund is managed by billionaire Mason Hawkins.

Oil and gas refining and marketing company Phillips 66 (PSX) was another of Buffett's high upside potential picks with the filing disclosing ownership of more than 27 million shares. Downstream oil and gas companies are generally seeing low earnings multiples in the current market environment, and the fairly recent ConocoPhillips (COP) spinout is no exception with both trailing and forward P/Es of 8.

With analysts expecting earnings per share to improve over the long term, we get a five-year PEG ratio of 0.7. Phillips 66 has risen about 80% in the last year. Gilchrist Berg, Steve Cohen, Colin Hall, and Manish Chopra are among hedge fund managers with bullish PSX positions.

Berkshire reported a position of 25 million shares in General Motors (GM), unchanged from the beginning of the year. GM trades at 11 times trailing earnings. Many market players, including a large share of analysts, billionaire David Einhorn, and apparently Berkshire's team as well, believe that auto makers are set for high growth as U.S. consumers replace an aging auto fleet and economic conditions in other markets improve.

However, recent reports show lower revenue and earnings at GM than a year ago. General Motors made our list of the most popular stocks among hedge funds in Q1 2013 (check out the full top 10 list).

Buffett was buying shares of $29 billion market cap oil field equipment and services company National Oilwell Varco (NOV) between January and March. At that valuation the stock carries trailing and forward P/Es of 12 and 10, respectively, and analysts are looking for enough growth to give it a Peg ratio of 0.9.

While revenue was up strongly in the first quarter of 2013, however, net income fell by over 20% and so we'd have to investigate it more closely before buying. Viking Global, managed by billionaire and Tiger Cub Andreas Halvorsen, initiated a position of 2.7 million shares during Q1.

A new position in Berkshire Hathaway's portfolio for 2013 was its 6.5 million shares of Chicago Bridge & Iron (CBI), a $6.3 billion market cap company which provides infrastructure engineering services primarily to energy customers.

The business stands to benefit from increased production of natural gas, and so while its trailing earnings multiple is fairly high at 21 analysts believe that it is actually undervalued -- that same valuation is only 12 times forward earnings estimates. Julian Robertson, Siddharth Thacker, and Ricky Sandler are betting on the stock.

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A fund that invests like Buffett

9:30 AM Buffett, invests No Comments

| By Lewis Braham, Bloomberg

This mutual fund holds a small number of thoroughly vetted value stocks, including Sysco and Goldcorp, evoking some of the Oracle of Omaha's famous folk wisdom.

"Put all of your eggs in one basket and then watch that basket," Warren Buffett says.

In other words, if you want to beat the market, focus your efforts on a concentrated portfolio of stocks whose businesses have been analyzed as thoroughly as possible to screen out any chance of a blowup.

Few follow this maxim as diligently as Scott Moore. The founder of Nuance Investments in Kansas City normally holds 15 to 35 stocks. Such concentration should make investing more volatile, as individual stock blowups have a greater impact on returns. Yet since he began running private accounts in this style in November of 2008, four months before the stock market hit bottom, he's delivered a cumulative 182.5 percent return to the S&P 500's ($INX) 114.9 percent, with 10 percent less volatility.

In May of 2011 Moore launched a mutual fund -- Nuance Concentrated Value (NCVLX) -- with an identical strategy. While the fund and his $500 million shop are relatively new, Moore co-managed the American Century Equity Income Fund (TWEIX) from October 1996 through September 2008. Over that time, the fund had a 215 percent cumulative return; the S&P 500 gained 107 percent.

The new fund has an expense ratio of 1.16 percent and an investment minimum of $5,000 at brokers such as TD Ameritrade and Scottrade. Lewis Braham spoke with Moore on the phone.

Q: How would you describe your investment strategy?

A: It is a classic value strategy similar to Warren Buffett's except we don't hold companies forever like him. We're trying to identify businesses that are No. 1 or No. 2 in market share in their industries. We do a thorough analysis to see if they have a sustainable competitive advantage.

We try to buy them when there's a transitory problem causing their earnings power to be depressed below normal levels. We calculate what the stock should be worth when earnings recover to normalized levels and what the worst case scenario could be. If the potential reward far exceeds the downside risk, we buy.

Q: What's an example of that process?

A: Our largest holding, Xylem (XYL), is a water infrastructure and equipment company. They provide pumps, valves, meters -- everything to get water from its primary source to a treatment facility and back to homes and businesses.

Across their lines of business they have leading sustainable positions. Yet the company is under-earning its potential because of the debt levels in U.S. and European municipalities. These municipalities don't want to spend on water infrastructure until their balance sheets are healthier. But we think the long-term story of water infrastructure is quite compelling.

Q: What is the long-term story?

A: There's a great need for improved water infrastructure in rapidly growing developing nations. Even in the U.S. our water infrastructure needs updating. While today's annual earnings per share for Xylem is $1.60, we think normalized earnings per share when municipalities start spending again will be in the $2 to $2.20 range.

Given this analysis, we feel the company has a downside share price limit in the low $20s, which was around where we were buying it this summer. Meanwhile, it has an upside value of about $40 a share. That's the sort of risk-reward ratio we look for.

Q: How do you keep a lid on volatility in such a concentrated fund?

A: We buy sustainably well-positioned businesses whose downside is able to be analyzed. If we see stocks where the downside risk can't be analyzed, we don't own them.

Those situations would be companies that are losing market share perpetually or going through a major competitive transition. Also, highly leveraged companies create situations where the downside could be to zero. We have no interest in those.

Q: Even though your portfolio is concentrated, do you have to limit sector or individual stock exposure?

A: The fund can't be more than 25 percent in one industry or more than 15 percent in one stock. The most we've ever been is 13 percent in one name.

Q: What kinds of stocks are you buying now? Is there a sector where you're finding good values?

A: We're seeing more one-stock situations, such as Sysco (SYY). It has the leading market share in the food distribution and services industry.

The company has been under-earning its potential largely due to an information technology software implementation with SAP that is costly in the short-term but that will be well worth it in the long run. It just agreed to purchase competitor US Foods for $3.5 billion. We like the deal and think it will be helpful to earnings.

Today's earnings per share are about $1.80, and we think that will go to $2.50 at a minimum when the company recovers. In the meantime we're collecting a 3.1 percent dividend.

Q: You also own Goldcorp. Mining stocks have been one of the few sectors hit hard this year. What's the story there?

A: Goldcorp (GG) is a leading business franchise with transitorily depressed earnings and an inexpensive stock valuation.

For all commodity company stocks we try to find the leaders based on their cash cost to produce the commodity. If you look at the gold markets as a whole, you'll find a cost of production in the $1,100 to $1,200 an ounce range. For Goldcorp, the cost is closer to $700. So clearly it is a low-cost leader. It's also now trading at a discount to its tangible book value. Historically with gold miners, if you can buy the low-cost leader below book value, its proven to be an outstanding investment.

Q: One advantage of working at a big shop like American Century is that you have a team of analysts. Can you cover the same ground running a smaller enterprise with a couple of people?

A: We had seven or eight investment guys there and we have three here. We'll have four eventually and I think that's the right number. Since we plan to close our fund and separate accounts when assets reach $1 billion, it will be easier to manage with less people.

One reason I launched Nuance was that I really missed being an investment analyst. When you're managing $13 billion and have seven or eight people working for you like I had at American Century, you end up being a meeting administrator. You end up listening to analysts a lot. I wanted to get back to what I like to do and what I do best -- studying businesses.

Q: Do you invest in your fund?

A: Every dollar of my equity holdings is in these products. Not necessarily in the mutual fund, but it's in these products.

Q: And the fund and separate accounts are run identically, so it doesn't matter too much.

A: Correct. I don't want anyone to think that I like one over the other. So my money is equally spread between the two.

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5 Buffett takes with large head

7:30 AM Buffett, Large, takes No Comments

| Meena Krishnamsetty and Matt Doiron, MarketWatch

Here are the largest holdings of Berkshire Hathaway from 30 March, who value investor appeal because of their low P/E-to-growth ratios.

Warren Buffett's company Berkshire Hathaway (BRK.A), its first quarterly 13F with the Securities and Exchange Commission filed last month. We have found that 13Fs used can generate to develop profitable investment strategies - an average excess return by 18 percentage points per year including the most popular small cap stocks among the hedge funds).

And it is always useful to moves by buffet, to examine its success story in excavations on the market value.

We also like to screen submissions by investors such as Buffett, stocks to find the different investment criteria, such as to comply with (PEG) proportions with low P/E to-growth. The PEG ratio connects the price earnings multiple analyst expectations for future growth, and while analyst predictions are often inaccurate, the ratio provides a way to assess a stock upside potential.

Here is a quick investments in the Oracle of Omaha investment vehicle take on the top five at the end of the first quarter, had the five-year PEG ratios of 0.9 or lower.

The holding company increased their share of DirecTV (DTV) in the first quarter of 2013 to a total of more than 37 million shares to 10%. Comes with a final result ratio multiples of 13 and with sell-side forecast high profit growth in the satellite-TV company, the PEG in much less than 1.

However, we would note that only 8% last quarter compared to the first quarter of 2012 results Germany grew. DirecTV was one of the top favorites in southeastern asset management portfolio; This Fund is managed by billionaire Mason Hawkins.

Oil and gas refining and marketing company Phillips 66 (PSX) was an another Buffett's high head takes potential with the filing of the disclosure of more than 27 million shares. Downstream oil and gas companies see generally low earnings multiples in the current market environment and the relatively new ConocoPhillips is no exception with both forward also trailing P / ES (COP)-Dreher 8.

With analysts we a five-year PEG ratio of 0,7 Phillips is expected to improve long term earnings per share received 66 such increased by 80% in the last year. Gilchrist Berg, Steve Cohen, Colin Hall and Manish Chopra include PSX positions to hedge fund managers with an upward trend.

Berkshire reported a position of 25 million shares at General Motors (GM), unchanged from the beginning of the year. GM trading around 11 times trailing earnings. Many market participants, including a large part of the analysts, billionaire David Einhorn and apparently Berkshire team also believe that the automakers for high growth are set, how U.S. consumers replace an aging car fleet and improve economic conditions in other markets.

However, recent reports show lower sales and earnings at GM as a year ago. General Motors made our list of the most popular stocks among the hedge funds in Q1 2013 (check out the full top 10 list).

Buffett was $29 billion market cap oilfield equipment and service provider National Oilwell Varco (NOV) between January and March to buy. In this assessment, the stock is trailing and forward P/es 12 and 10, respectively, and analysts are looking for enough growth, there is a peg ratio of 0.9.

While sales in the first quarter of 2013 strongly up was, however, net profit fell by more than 20%, and so we should to examine it before buying. Viking global, managed by billionaire and Tiger Cub Andreas Halvorsen, initiated a position of 2.7 million shares during Q1.

A new position in Berkshire Hathaway portfolio for 2013 was the 6.5 million shares of Chicago bridge & iron (CBI), a $6.3 billion market cap companies, which provides infrastructure engineering services primarily to the energy customers.

The company stands to benefit increased production of natural gas and so, while the subsequent result is several rather high by 21 analysts believe that it actually unterbewertet-- the same assessment is only 12 times forward earnings estimates. Julian Robertson, Siddharth Thacker and Ricky Sandler put on the stock exchange.

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Buffett: Raising taxes on rich won't chill economy

5:00 PM Buffett, chill, economy, Raising, taxes No Comments

Super investor Warren Buffett, the chairman of Berkshire Hathaway, speaks with TODAY's Matt Lauer about Cyber Monday sales figures, consumer confidence and the future of the American economy.

By Ben Popken, TODAY contributor
Raising taxes on the rich won't dampen economic growth and would "raise the morale of the middle class," billionaire investor Warren Buffett told the TODAY show Tuesday.

Echoing a theme he has stressed often, Buffett downplayed the idea that higher taxes for the wealthy, as proposed by the Obama administration as part of a deal to resolve the "fiscal cliff," would scare off critical investment for job creation. Republicans argue that raising taxes on people in higher tax brackets would choke off investment and slow the economy at a time when it can ill afford it.

Buffett disagrees. "No, and I think it would have a great effect on the morale of the middle class," said Buffett, in the first of two live interviews with TODAY's Matt Lauer. "They've had to watch guys like me pay below the rate by that paid by the people in my office."

Also known as the "Oracle of Omaha" for his investing acumen, Buffett's views on the economy are widely followed, including on whether we're really going to go off the "fiscal cliff" of $500 million in tax hikes and spending cuts.

The CEO of Berkshire Hathaway has been vocal on the economy lately, proposing in a New York Times op-ed Monday that there be a minimum tax for the wealthy.

"I'm confident," said Buffet when asked about how he was feeling about the economy. "I can't speak for others, but at Berkshire Hathaway, we buy and sell stocks every day. America's a winner."

Lauer brought up a recent quote from Honeywell CEO David Cote who told Meet the Press that he and others like him were feeling a lack of confidence in the political process, so much so that the uncertainty was making them keep their money on the sidelines and preventing them from making additional investments, including hiring.

"At Berkshire Hathaway, we're investing 9 billion in plant equipment, a record, breaking last year's record. It's always uncertain," said Buffett.

"December 6th 1941 was uncertain," said Buffett, referring to the day before the attack on Pearl Harbor. "We just didn't know it."

When asked whether Congress would really enact a strong proposal such as the one Buffett made in his Times op-ed, which suggested setting a minimum 30 percent tax for millionaires, Buffet said, "I wouldn't be surprised. They're going to make a deal."

Now there's a new Buffett book, "Tap-Dancing to Work" that trace his career through 80 different FORTUNE Magazine articles over the years. If there's one thing that stuck out from the timeline, Carol Loomis, FORTUNE editor, who collected and expanded the articles for the book, told TODAY, it's "how consistent he's been in his thinking. He's never changed."

"I couldn't be more boring," said Buffett. "I just look at the facts and wherever they lead me, I go."

Is this the secret to Buffett's success? Lauer asked Loomis. It's hard, she said, because other investors "get emotional."

Buffett is known for finding undervalued companies with strong fundamentals and good management. "It's simple, but not easy," said Loomis. "That's why other people can't do it. He's thinking about business 24/7."

Lauer asked if this book was a goodbye letter of sorts. "What's it going to mean to the world when he hangs up his investing shoes?" he asked.

Loomis said, "He will be remembered. His role in life will be remembered for the next century. I don't know whether investing or philanthropy is going to be the lead item. People are going to be reading about Buffet 100 years from now."

About that retirement... "Got a date in mind?" Lauer asked the 82-year old businessman.

Buffett just laughed.

Read a free excerpt from the book Tap-Dancing to Work.

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Warren Buffett, Bill Gross spar over buying bonds

4:31 AM bonds, Buffett, buying, Gross, Warren No Comments

Berkshire Hathaway Chairman Warren Buffett: Bonds are 'dangerous.'

With the stock market coming off its best January since 1997, is now the time to turn away from equities and invest in bonds?

Apparently, it’s not a question that some of the world’s biggest can agree on.

According to a Bloomberg News report, renowned fund manager Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management, has increased his holdings of Treasuries to the highest level since July 2010, while billionaire investor Warren Buffett calls bonds “dangerous” destroyers of purchasing power for investors.

Gross, who has earned the title “the Bond King”' for his mastery over the bond market, has boosted U.S. government and Treasury debt to 38 percent of assets in Pimco’s $250.5 billion Total Return Fund from 30 percent in December, Bloomberg reported.

Buffett, another investment guru with a faithful following, said Thursday in an adaptation from his upcoming shareholder letter posted on Fortune magazine’s website that taxes and inflation should deter investors from buying debt.

“They are among the most dangerous of assets,” Buffett wrote. “High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.”

Buffett also notes that “over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”

“This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.”

Buffett writes that equities almost always beat the alternatives over time. His comments echo those of Laurence D. Fink, the chief executive officer of investment firm BlackRock, who said earlier this week that investors should have 100 percent of their holdings in equities because they offer greater returns than bonds.

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