Buy Berkshire Hathaway's Stocks at Warren Buffett Prices

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Includes: COP, JNJ, MDLZ, USB, WMT
by: NakedValue

Warren Buffett, Chairman and CEO of Berkshire Hathaway, is the world's most famous investor. While his most iconic investments like American Express (NYSE:AXP), Coca-Cola (NYSE:KO) Company and Proctor & Gamble (NYSE:PG) were purchased well below the current stock prices, there are exceptions.

In Berkshire Hathaway's most recent shareholder letter (pdf), Buffett detailed the costs of his 14 biggest stock investments. Five of these stock holdings are trading close to Buffett's original cost basis, meaning that investors can purchase Berkshire Hathaway stocks at Warren Buffett prices. Considering the amount of time that investors spend trying to guess the next Berkshire Hathaway investment (article), these five names are an interesting opportunity. Investors should take a closer look.


CONOCO PHILLIPS (NYSE:COP)
Buffett's cost: $69.67
Market price: $79.68

Buffett purchased this diversified oil and gas producer late in the previous oil price spike. Buffett admitted that the purchase suffered from poor timing as the stock dropped to as low as $35 during the financial crisis. The stock has since rebounded with the rest of the energy names.

While COP has a higher than average cost structure, its forward P/E of 9.78, as well as Buffett's ownership make this an interesting energy stock.

JOHNSON & JOHNSON (NYSE:JNJ)
Buffett's cost: $61.06
Market price: $60.15

The stock appears to be a cheap blue chip company with diversified businesses and a truly global reach. The strength of its brand name is evidenced by a profit margin of 21% and a return on equity of 25%. But recently, the stock has been saddled by a seemingly endless parade of drug recalls and accusations of improper management of drug production facilities.

Despite the negative headlines, investors will likely be drawn to the company's long-term prospects. While they wait, investors earn a 3.6% dividend yield on a company with a forward P/E of 11.68.

KRAFT FOODS (KFT)
Buffett's cost: $32.99
Market price: $32.51

Buffett made headlines by publicly showing his displeasure for CEO Irene Rosenfeld's aggressive acquisition of Cadbury (CBY) Plc. Since then, Buffett has reduced Berkshire's Kraft (KFT) holdings, but with 97 million shares, they are still a large stakeholder. The company owns a large portfolio of products ranging from Maxwell House to Oreo to Cadbury to Halls. The company sports a forward P/E of 12.55 and a dividend yield of 3.70%

Warren Buffett is not the only famous shareholder of Kraft Foods. According to the most recent SEC Form 13F, Bill Ackman's Pershing Square owned around $600 million worth of Kraft Foods stock.

US BANCORP (NYSE:USB)
Buffett's cost: $30.76
Market price: $26.60

With over 3,000 branches and 5,323 ATMs, US Bancorp is poised for growth as the other large money center banks are already bumping up against the 10% depository limit.

The forward P/E is 10.35 and the price/book ratio is 1.85. In the future, the company should have substantial upside as it improves profitability. In 2006, the company produced $4.8 billion of net income with two-thirds of the current revenue. If US Bancorp can return to 2006 level profit margins, it could generate $6.3 billion in net income with current revenues. This leads to a P/E of around 8.0 based on the current market capitalization. Once you factor in growth potential, this is a cheap stock.

WAL-MART STORES (NYSE:WMT)
Buffett's cost: $48.49
Market price: $52.65

The retailing giant is victim to the same low valuations used on the rest of the retail industry. The market is worried that retailers face dual headwinds as raw material inflation reduces gross margins and rising gasoline prices reduce consumer spending capacity. These are real threats, but Wal-Mart's scale and efficiency make it the most capable retailer to deal with these issues.

With a forward P/E of 10.79 and a PEG ratio of 1.14, this blue chip retailer is an interesting stock. As we discussed in a previous article, many retailers are using cost cutting and store space optimization to improve earnings. Wal-Mart is no exception as it develops the Wal-Mart Express concept.

Disclosure: I own JNJ and may initiate a long position in WMT and USB over the next 72 hours.