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Last week Warren Buffett commented that pricing power is more important than management when it comes to finding good buys. This is called market power in economics. Firms that can raise their prices without losing customers are said to have market power. The extreme case of market power is called monopoly.

Anthony Scaramucci, Managing Partner of the SkyBridge commented on Buffett's latest words on CNBC‘s Fast Money. He named four companies that have the greatest pricing powers: Apple (NASDAQ:AAPL), Philip Morris (NYSE:MO), Walter Energy (NYSE:WLT) and Loral Space & Communications (NASDAQ:LORL). Scaramucci said the following about these stocks:

Philip Morris' addictive product has very high barriers to entry. People are paying $15 a pack in New York, they would easily pay 20$ because of the addiction of the product.

Walter Energy, this is something that's tied to metallurgic coal and basicly you need this product for steel production. Steel demand is booming globally, and they have huge pricing power there, Particularly because a lot of the competitors have already contracted out.

And lastly on Loral, they have 70% market share. They have twelve in-orbit telecommunication satellites, two more probably going to be launched, unbelievable data transmission and demand in telecom right now. These guys have huge pricing flexibility, so what Buffett says is sometimes management teams are OK, the best management teams will not necessarily do a great job on poor bussinesses, so he's looking for the combination of great bussiness fundamentals and exemplary management teams, but these three companies have both in our opinion.

Unfortunately, Warren Buffett doesn’t have any of these names in his portfolio. Buffett probably thinks the following 10 stocks have the best management/pricing power combination. These are Warren Buffett's largest positions in his 13F portfolio:

Company

Ticker

Return

Value (Million)

Coca Cola

KO

16.8%

13154

Wells Fargo

WFC

22.0%

10618

American Express

AXP

14.9%

6507

Procter & Gamble

PG

10.1%

4938

Kraft Foods Inc.

KFT

18.1%

3315

Johnson & Johnson

JNJ

-1.8%

2636

Wal-Mart Stores Inc

WMT

6.0%

2105

Wesco Finl Corp.

WSC

14.7%

2101

ConocoPhillips

COP

57.5%

1982

US Bancorp

USB

27.9%

1862

These ten stocks had a weighted average return of 17.6% since the end of 2009, underperforming the SPY’s 22.6% return. We don’t think any of the banking stocks have much of a pricing power. Coca-Cola, Procter & Gamble, Kraft Foods, and Johnson & Johnson may have limited market power. Most of these companies are well-managed companies. Warren Buffett clearly prefers stocks that are well managed over stocks with pricing power. Considering Warren Buffett likes to hold stocks forever, this makes sense.

Insider Monkey, your source for free insider trading data, thinks Warren Buffett developed a bias towards capital preservation over the past decade. As a result, his alpha disappeared (see Warren Buffett's Alpha). His largest stock positions underperformed the market over the last 12 months by a large margin. Most of these stocks aren't owned by successful hedge funds either. The most popular stock in this list is Wells Fargo (NYSE:WFC). David Tepper'a Appaloosa, Tom Steyer's Farallon, John Paulson, Leon Cooperman, Mohnish Pabrai, and Bill Miller are among the high profile WFC investors. Bill Ackman's Pershing Square also has a large Kraft stake. Most of the other stocks aren't favored by smart money.



Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 10 Stocks With Pricing Power, Good Management