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By Siraj Sarwar

Warren Buffett is a renowned American investor, philanthropist, and business magnate. He is considered as one of the most successful investors of the 20th century. Buffett is the shareholder, chairman and CEO of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), which is renowned for buying stakes in solid corporations that trade below intrinsic value. Buffett buying is considered as a vote of confidence for any firm's continued success.

At the end of Q4, Berkshire Hathaway initiated positions in three stocks and made additional purchases of 10 stocks. Its portfolio was heavy on financial (37.37%), consumer goods (25.5%) and technology (19.8%). In this article, I examine Warren Buffett's 5 latest picks. These are Archer-Daniels Midland Company (NYSE:ADM), VeriSign (NASDAQ:VRSN), Kraft Foods Group (NASDAQ:KRFT), Wabco Holdings (NYSE:WBC), and General Motors (NYSE:GM).

Shares Held

% of Portfolio

Previous % of Portfolio

Ranks

Changes in Shares

ADM

5,956,600

0.22 (%)

0.00

31

New

VRSN

3,685,700

0.19 (%)

0.00

32

New

KRFT

1,668,714

0.10 (%)

0.00

34

New

WBC

4,071,925

0.35 (%)

0.12 %

26

154 (%)

GM

25,000,000

0.96 (%)

0.45 %

13

66 (%)

Archer-Daniels Midland Company is the first stock in this collection. Archer is a processor of oilseeds, corn, wheat, cocoa, and other feedstuffs. The company is also a manufacturer of vegetable oil and protein meal, corn sweeteners, flour, biodiesel, ethanol, and other value-added food and feed ingredients.


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At the end of Q4, Warren Buffett initiated a position in Archer-Daniels by purchasing 5.95 million shares at an average price of $27 per share. Since then, shares of the company have been on a surge and gained nearly $19.37. At present, ADM is ranked at 31 in the Berkshire Hathaway portfolio.

Archer's team managed well in spite of challenges from the persistent, negative margins in the ethanol industry and the U.S. drought. After the tough business environment in 2012, recently, Archer still announced quarterly results with massive earnings of $510 million or $0.77 per share. Together with these outstanding results, the company also announced an increase of 8.7% in dividends. At the moment, ADM offers a quarterly dividend of 19 cents per share, yielding at 2.24%.

Many investors seek to invest in the companies that have the ability to constantly grow in the amount of dividends paid. Warren Buffett is a value investor who invests in companies that tend to pay increasing dividends. I think Berkshire is likely to increase its stake in Archer-Daniels, as the company perfectly matches the Berkshire's existing portfolio of dividend growth stocks.

VeriSign is a provider of Internet infrastructure services for the networked world. It delivers network confidence and availability for mission-critical Internet services. VeriSign is a new stock in the portfolio. At the end of Q4, Berkshire Hathaway purchased 3.68 million shares of VeriSign which constitutes 0.19% of the portfolio. This is the first appearance of VeriSign's in Berkshire's portfolio.


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Berkshire purchased VeriSign at the time when the stock was significantly undervalued in December 2012. Since then, the stock has been on a surge and gained nearly 28.71%. Over the previous three years, the stock has been growing at an incredible pace and gained nearly 82%.

Furthermore, the company currently has a strong revenue base and solid financial position to back the price on the stock exchange. Recently, it announced a 13% year over year growth in revenues. Below are some key financial indicators which suggest it has the solid financial position to support future growth:

  • Earnings Per Share this year: 129.63%
  • EPS next 5 years: 12.83%
  • EPS past 5 years: 14.72%
  • Profit Margin: 35.77%
  • Return on Investment: 24%

Kraft Foods Group Inc. is a beverage and consumer packaged Food Company. It has an unrivaled portfolio of products in the cheese, beverages and grocery categories.

After the spinoff, Kraft is seeking to become an attractive choice for income seekers. Recently, it announced a hefty dividend of $0.50 per share. This represents one of the best yields of 4.56% in the consumer defensive sector. Berkshire is always bullish on solid and stable dividend payers, and has a large position in the company. Currently Warren Buffett holds a position in Kraft shares worth $7.5 billion.


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Over the previous few years, packaged food industry margins condensed due to the economic crises. In these environments, we witnessed Kraft and Supervalu's spin-off and sales. After the spin-off, Kraft was able to enhance margins. The spin-off appears to be truly beneficial for the company with large margins for the last quarter. I recommend Kraft a buy with a yield of 4.5%. Here are a few metrics:

  • EPS in the trailing twelve months: 3.21
  • Gross Margin: 32.70%
  • Profit Margin: 10.29%
  • Price/Earnings Ratio: 14.55%
  • Quick ratio: 0.71

Wabco Holdings Incorporated is a provider of electronic, mechanical and mechatronic products for the commercial truck, trailer, and bus and passenger car manufacturers.

Wabco is one best growth stocks in the industry. The stock is a bit pricey on P/S and P/B ratios of 1.8 and 6.4 respectively, while the industry average stands at 0.6 and 2.3. Amidst all of this, stock has been constantly following an upward trend. Over the previous three years, on average, the stock has gained nearly 147%.


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Over the years, everything has been going in favor of Wabco. In addition, Wabco has a strong operating system which led it to achieve record production. Regardless of the fact that the global market is facing a decline in the demand of Bus and Trucks, Wabco was able to outperform the global market.

The company has the following metrics:

  • EPS Growth (3 Yr Avg): 151.6
  • Operating Margin % TTM: 13.1
  • Net Margin % TTM: 12.2
  • Return on Equity during the trailing twelve months (ROE TTM): 47.8

On the negative side, Wabco sales and profits have been going down compared to the previous years. The company margins were also declining at the end of Q4 mainly due to the decline in demand for trucks and buses all over the globe. Although the company is facing market uncertainty in 2013, I believe that it will able to continue to deliver outstanding value for WABCO's shareholders. At the end of Q4, Berkshire increased its stake in Wabco by 154%. At present, Berkshire holds 4.07 million shares, and it is ranked at 26 in the portfolio.

General Motors Company develops, produces and markets trucks, cars, and vehicle parts all over the globe. The company operates through three segments: General Motors Europe; General Motors North America; and General Motors International Operations. General Motors has been one of the favorite stocks of Buffett over the previous few quarters. At the end of Q4, Berkshire increased its stake in GM by nearly 66%, representing 0.96% of the portfolio.


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Over the years, General Motors has been providing significant returns to shareholders. Its stock is currently showing an upward trend after collapsing to $20 in mid 2012. I believe General Motor is a buy at present at P/B 2.0. In addition, the stock has significant upside potential as it is trading below its high of $38.

Furthermore, With a Price-to-Earnings ratio of about 9.3, General Motors beats the industry's average of 25. Additionally, GM has shown positive growth in its business over the last year. GM sold over 2.5 million vehicles in China in 2012 and 2.5 billion in the United States.

Source: 5 Stocks Favored By Warren Buffett