Analyze Earnings Yield Like Warren Buffett

Berkshire Hathaway (BRK.A) filed their 13-F that details their portfolio holdings. It is well documented that Warren Buffett likes to look a company's earnings yield relative to bonds to determine how attractive it is. The 10 year yield is currently at 3.33%.

Below we analyze the earnings yields (EPS/Stock Price) for Berkshire Hathaway’s current holdings:

• Gannett (GCI) - GCI Earnings Yield 18.70%
• NRG Energy (NRG) - NRG Earning Yield 17.90%
• Torchmark (TMK) - TMK Earnings Yield 10.82%
• Travelers (TRV) - TRV Earnings Yield 10.10%
• Exxon (XOM) - XOM Earnings Yield 8.47%
• Sanofi Aventis (SNY) - SNY Earnings Yield 8.29%
• Kraft Foods (KFT) - KFT Earnings Yield 7.62%
• Johnson & Johnson (JNJ) - JNJ Earnings Yield 7.44%
• GlaxoSmithKline (GSK) - GSK Earnings Yield 7.29%
• Procter & Gamble (PG) - PG Earnings Yield 6.95%
• Moody’s (MCO) - MCO Earnings Yield 6.91%
• General Electric (GE) - GE Earnings Yield 6.90%
• Union Pacific (UNP) - UNP Earnings Yield 6.81%
• Beckton Dickinson (BDX) - BDX Earnings Yield 6.64%
• Wal-Mart (WMT) - WMT Earnings Yield 6.41%
• Norfolk Southern (NSC) - NSC Earnings Yield 6.10%
• Lowes (LOW) - LOW Earnings Yield 5.81%
• Comcast (CMCSA) - CMCSA Earnings Yield 5.70%
• Burlington Northern (BNI) - BNI Earnings Yield 5.36%
• Home Depot (HD) - HD Earnings Yield 5.05%
• Coca-Cola (KO) - KO Earnings 4.78%
• Nike (NKE) - NKE Earnings Yield 4.75%
• M&T Bank (MTB) - MTB Earnings Yield 4.38%
• CostCo (COST) - COST Earnings Yield 4.10%
• UPS (UPS) - UPS Earnings Yield 3.62%
• US Bancorp (USB) - USB Earnings Yield 3.45%
• Wells Fargo (WFC) - WFC Earnings Yield 3.25%
• Carmax (KMX) - KMX Earnings Yield 3.20%
• Iron Mountain (IRM) - IRM Earnings Yield 3.15%
• Wesco Financial (WSC) - WSC Earnings Yield 3.05%
• American Express (AXP) - AXP Earnings Yield 2.68%
• Republic Services (RSG) - RSG Earnings Yield 2.40%
• Washington Post (WPO) - WPO Earnings Yield .55%
• Bank of America (BAC) - BAC Earnings Yield .19%

Most of the holdings are yielding well above 10 year treasuries with strong consistent earnings paths. This tends to bode well for future performance. You can get rankings by earnings yield or any another metric here.

Earnings yield is a good starting point to quickly evaluate the relative yield on a company vs bonds. Typically, you want a couple points above treasuries for the additional risk in equities and Berkshire Hathaway does this for the most part. Check your stocks and see how many have earnings yields over treasuries. You may be surprised with the results.

Disclosure: No positions

Comments

[berloe]

Great! Thanks for the article and ycharts info. Does anyone know a quick source for free cash flow per share?

2009 Nov 18 01:22 PM