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Value, growth at reasonable price, long-term horizon, long only
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Since 2005 when I bought my first stock, I have tried many different approaches to investing. However the only one that resonated deeply with me was the Buffett & Munger approach to value investing. Buying shares of companies that have a durable competitive advantage (a business moat). I don't use any kind of leverage and I try to buy them at good to great prices. This approach won me over because it has three big advantages:

  • Time is your friend, not your enemy. Even if you pay a little more than you should, you have the ability to wait it out. The business you invested in will continue to produce more and more profits, constantly increasing in value.

  • It's easier to figure out the company's value through a present value calculation. The company's moat ensures that future cash flow is somewhat predictable.

  • You don't lose sleep at night. This approach cuts you off from the every-day chaos that is in the markets. You don't have to be on top of every piece of news nor have an immediate opinion about data from economic reports.

Below I will share with you five stocks that fit my approach and have solid potential for great returns in 2013.

Applied Materials, Inc (NASDAQ:AMAT)

Applied Materials is the leading provider of manufacturing equipment for the semiconductor industry, the Solar-Photovoltaic industry and the TFT-LCD industry.

Its competitive advantage is the high switching cost its customers face if they choose to go elsewhere for their equipment. This is for two reasons. The first is that the equipment Applied provides is extremely critical to end-product quality and plant profitability. As a result OEMs don't experiment with their equipment providers.The second reason is that Applied is working closely with its customers in terms of R&D and is always one step ahead of their needs and industry trends.

As the semiconductor industry prepares for 16nm production and the solar industry recovers from overcapacity, I believe that 2013 will become the first year in a long time that Applied Materials will begin to grow again.

My fair value estimate for the stock is between $14.43 and $17.85 presenting a 20% to 50% upside from current ($11.84) levels.

You can read Applied's full analysis here.

Community Health Systems, Inc (NYSE:CYH)

Community Health Systems is a health services provider with more than 130 hospitals. Its key strength is the local monopolies it enjoys in 60% of its markets.

This company has three tailwinds on its way for growth.

  • Obamacare is here to stay and mandatory health insurance will improve patient's creditworthiness and thus CYH's profit margins.

  • The U.S. population is ageing and 65 year olds will have doubled in number by 2050. That means more business for healthcare companies.

  • Hospital privatization in the U.S. has a long way to go. There are plenty of local independent hospitals for CYH to acquire and thus continue to grow though acquisitions.

My fair value estimate for the stock is between $45 and $60. That is a 45% to 90% upside potential from current price levels ($31.22).

You can read CYH's full analysis here.

Dover Corporation (NYSE:DOV)

Dover consists of over 30 excellent wide-moat manufacturing businesses. It has an excellent decentralized acquisition & management culture that strengthens its moat every day.

There are no specific catalysts for this stock except quarterly earning releases and the occasional acquisitions it announces. There is a great tailwind that's boosting its growth, and that's the smartphone boom. One of Dover's subsidiaries, Knowles makes cell phone microphones and speakers benefiting in a major way from the increase in cell phones all around the world.

At its current price ($67.24) Dover promises a decent 10% to 15% annual return for many years to come. However I would suggest to keep it on your watch list for when it declines below $60-$58.

You can read Dover's full analysis here.

Intel Corporation (NASDAQ:INTC)

Intel is the dominant chip-maker in the semiconductor industry. It was battered down recently, because of fears that the PC market is shrinking and Intel won't be able to compete with the ARM ecosystem in smartphones and tablets.

As a result of these fears, the average analyst estimate is for a 7.8% decline to EPS for 2013. However, I strongly disagree with this for one major reason. The average analyst underestimates or completely disregards Intel's strong competitive edge.

As I argue in my latest article about Intel, its Tick-Tock strategy will yield in 2013 products capable of winning significant market share in the smartphone and tablet space. Add in this the fact that Windows 8 are going to change the way we view and use PCs and you'll understand why PCs won't fade away any time soon.

My fair value target for Intel is between $32 to $36 and reveals an upside potential of 50% or more from current price levels ($21.38). Add Intel's 4.2% dividend yield and we have a large cap stock that is extremely undervalued.

You can read Intel's full valuation analysis here.

The Western Union Company (NYSE:WU)

Western Union is the leader in global money transferring. Its key strength lies in its huge network of more than 500,000 agents all around the globe. Its massive scale and its trusted brand give Western Union four times the revenue of its closest competitor, MoneyGram.

Due to concerns over margin pressure and the potential for market share losses many analysts downgraded the company. This resulted to a massive fall for the stock from $18 to $12 within a few days. I believe that the stock's fair value is between $15.32 and $21.20, and 10% to 50% upside potential from current price levels ($13.76).

You can read Western Union's full analysis here.

Source: 5 Buffett And Munger Value Stocks With Solid Profit Potential For 2013

Additional disclosure: I may initiate a long position in AMAT, DOV, WU within the next 72 hours.