If you do your homework, you can buy stocks that Warren Buffett owns and still likes--- at a price less than he paid. What?! Yes, it is hard to believe, especially in the booming market of the last few years, but read on.
First, you need a list of the stocks that Buffett still likes. In column 1 of the chart below, we have a list of stocks where his last action was to add more of that stock to his portfolio. I listed these Warren Buffett "like" companies in descending order as a percentage of his portfolio. For example, Wells Fargo (WFC) is listed first because it makes up a larger portion of the Berkshire Hathaway (BRK.A) portfolio than IBM. I have omitted stock holdings where Buffett's last action was to reduce his position, or where he has neither bought nor sold that stock in any recent years. The data used generally goes back to 2006 or to the date of first purchase for more recent acquisitions.
Next, in column 2, we look at the highest price that Warren Buffett ever paid for that "like" stock (at least since 2006). At the time he paid his highest price he thought the stock was worth at least that much, and he has kept that stock since then and sometimes even added to it. Of course, both you and he would prefer to buy the stock for less. He often did.
As a caution, we need to look at when Warren Buffett made that highest price purchase. Column 3 sets forth the purchase dates. We prefer more recent purchases, as they would more likely reflect his continued desire to buy and hold that stock. For example, Buffett paid his highest price for U.S. Bancorp (USB) in Q3 of 2013, and so we would assume that he likely still believes the stock is worth at least that price or something close to it.
In Column 4 we see the market price of each stock as of December 15, 2013.
Those stocks that are still cheaper than the highest price Warren Buffett paid are marked in Column 5. These are the Dogs of the Buffett. Actually, he might be ahead even with some of the Dogs, as his average purchase price may be lower than the market price. However, we are only looking at the highest price he paid.
We have three Dogs of the Buffett: IBM, National Oilwell Varco Inc. (NOV), and Suncor Energy Inc. (SU); and a fourth alternate, DaVita HealthCare Partners (DVA). As of Friday December 13, 2013 you could buy these 3 stocks for a price less than the highest price Buffett paid, and buy DVA at almost the same price as the highest price that he paid.
Are there any other reasons to invest in these Dogs of the Buffett?
A quick look at some of the basic data shows that all three Dogs (IBM, SU and NOV) have merit. All three have P/E ratios of less than 20 and produce dividends, even if not huge (data per marketwatch.com December 18, 2013).
IBM has a P/E ratio of 12.09, and a dividend yield of 2.16%.
But will IBM survive? IBM long ago wisely stopped building personal computers as it saw that Microsoft would provide the software and low-cost Asian companies would increasingly provide the hardware. Instead, it focused on the business market where it provides hardware and software in an integrated package to business clients. Some argue that the cloud is cutting into that market. That is probably true. However, historically the data world has shifted back and forth between local and distributed computing. Local computing has a number of advantages. For example, high speed computers need to be located close to each other in order to have the highest processing speed. The speed of light is fast but it is still limited. Also, data security requirements may drive business into private clouds or even stand-alone computers. It is only a matter of time before a major security breach bankrupts a data-based company. In the world of local integrated business computing IBM is the major player, and speed and security concerns, as well as its focus on service, could keep IBM around and thriving for a long time.
SU has a P/E ratio of 17.94, and a dividend yield of 2.28%
SU is an oil company with substantial interests in Canadian oil sands. The majority of its earnings come from production from those oil sands, and unlike many traditional oil fields, it appears that they will be a long term source of cash flow. The company also has interests in offshore Eastern Canadian oil fields, and has a refining business.
NOV has a P/E ratio of 14.23; and a dividend yield of 1.33%
NOV provides equipment and components and related services used in oil & gas drilling and production. Of special interest, NOV is a player in the high tech and deep water drilling rig fields. Its biggest business segment is in rig technology. The easy ocean oil has probably been found, and now the rigs must go into deeper water. In addition, the increased focus on ocean drilling safety requires more sophisticated rig technology. This provides a market for high tech rig equipment companies like NOV. As of the end of the third quarter NOV had a substantial backlog of orders.
If IBM, NOV, and SU do not appeal to you, then you might want to wait for a market correction. The following additional stocks (column 6) are at market prices within 10% of the highest price that Buffett paid: WFC, Wal-Mart Stores (WMT), Exxon (XOM), USB, Bank of New York (BK), National Oilwell Varco Inc., and Deere & Co. (DE). Some of these stocks, or even other Buffett stocks, may show up as Dogs of the Buffett in the future.
Company (listed by % of portfolio)
Highest Buffett buy price
through 2013 Q3
Time of purchase at highest price Buffett paid
Price as of 12/15/13
A "Dog" of the Buffett at this time?
Rainy day list.
Within 10% of Buffett's highest price paid. (Maybe Dogs on the next dip?)
International Bus. Machines (IBM)
Exxon Mobil Corp.
DaVita HealthCare Partners
Phillips 66 (PSX)
General Motors (GM)
Liberty Media Capital (LMCA)
Bank of New York
National Oilwell Varco Inc.
Chicago Bridge & Iron Company (CBI)
Suncor Energy Inc.
Viacom Inc. (VIAB)
M&T Bank Corp. (MTB)
$69.90 (highest Buffett buy price since position was reduced in 2010)
VeriSign Inc. (VRSN)
Precision Castparts (PCP)
WABCO Holdings Inc. (WBC)
Deere & Co.
MasterCard Inc. (MA)
Media General (MEG)
Dish Network Corp. (DISH)
Caveats. The data is only through Q3 2013 (and goes back only approximately 7 years, or less in some cases). Warren Buffett may, and probably has, made additional purchases and sales since September 2013. Also, the information reflects Berkshire Hathaway holdings per Datarama.com. I do not know whether Buffett directed any or all of the purchases. Further, I have not personally examined quarterly filings to confirm the listed data. The data in columns 1 through 3 is per datarama.com and the data in column 4 is per marketwatch.com.
The information in this article was provided for educational purposes only, and I make no suggestion that you buy, sell or hold any stock or other investment. Stock prices can go up or down significant amounts at any time. Before making any investment confirm all facts about the stock, company and your personal financial situation, double check any information from any source, and consult with a financial services professional. Thank you. Bill
Additional disclosure: I have no present plan to buy or sell any of the stocks mentioned in the article, but I might do so at any time.