Warren Buffett, the legendary CEO of Berkshire Hathaway (BRK.A), is one of the most respectable and regarded investors of all times, owning a fortune of around $50 billion. He is currently the 3rd richest person over the globe. His company, Berkshire Hathaway, is the 8th biggest company, according to the Forbes Global 2000 list. I have listed the first seven of his stock picks and explained my opinion about them. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible.
Here is a fundamental analysis on the top seven stocks in the Oracle of Omaha’s portfolio:
Stock Name | Ticker | O-Metrix Score | My Take |
The Coca-Cola Co. | 3.58 | Buy After Pullback | |
Wells Fargo | 11.08 | Buy | |
American Express | 5.13 | Long-Term Buy | |
Procter& Gamble | 4.22 | Buy After Pullback | |
Kraft Foods | 3.35 | Hold | |
Johnson& Johnson | 3.36 | Long-Term Buy | |
ConocoPhillips | 7.66 | Buy |
Data obtained from Finviz/Morningstar and is current as of Sep 9.
Buffett holds 200 million of Coca-Cola shares, worth $13.64 billion. Coca-Cola shows a trailing P/E ratio of 13.3, and a forward P/E ratio of 16.6, as of Sep 9. Analysts estimate an 8.0% annual EPS growth for the next five years. It paid a 2.71% dividend last year, while the profit margin was 29.7%.
The beverage titan had an EPS growth of 72.75% this year, and 17.81% this quarter. SMA50 and SMA200 are 1.61% and 5.95%, respectively. O-Metrix score of the company is 3.58, and it returned 19.5% in a year. Debt-to assets ratio is 0.3, far better than the industry average of 1.1. Target price indicates a 12.2% increase potential, whereas the stock is trading 3.34% lower than its 52-week high. While ROA is 19.49%, ROE is 41.29%. Coca-Cola is a dividend pick for the next five years. I would rather wait for a pullback before buying.
Buffett bought nearly 10 million Wells Fargo shares last quarter, increasing the total stake to 6.64% in this stock. Wells Fargo, a John Paulson favorite, has a P/E ratio of 9.0, and a forward P/E ratio of 7.1, as of the Friday close. Five-year annualized EPS growth forecast is 15.8%, which is reasonable given the 19.98% EPS growth of past 5 years. Profit margin (16.5%) is way higher than the industry average of 6.5%, while it offered a 2.04% dividend last year.
Earnings increased by 26.21% this year, and 27.81% this quarter. Institutions own 77.05% of the stock, and insider transactions have increased by 39.68% in the last six months. Target price implies a 48.9% upside potential, while it is trading 30.74% lower than its 52-week high. It has a remarkable O-Metrix score of 11.08. Debts are decreasing for the last three years, and the stock returned -11.3% in the last twelve months. ROE is 11.6%, more than tripling the industry average of 3.6%. Moreover, it has a five-star rating from Morningstar. This stock is an opportune buy.
Buffett holds 12.61% of American Express, worth $6.95 billion. The company was trading at a P/E ratio of 12.8, and a forward P/E ratio of 11.6, as of Friday’s close. Estimated annual EPS growth for the next five years is 11.0%. With a profit margin of 16.0%, American Express paid a 1.52% dividend last year.
Target price implies an about 21.1% increase potential, while it returned 14.7% in a year. O-Metrix score of the company is 5.13, and it is currently trading 12.12% lower than its 52-week high. Earnings increased by 27.49% this quarter, and 117.00% this year. ROE (28.5%) and debt-to equity ratio (3.4) are strong green flags. Debt-to assets ratio is going down for the last five quarters. 16 out of 25 analysts covering the company recommend buying. American Express is a charming stock to go long.
Buffett holds more than 76 million Procter& Gamble shares worth $4.75 billion. It shows a trailing P/E ratio of 16.0, and a forward P/E ratio of 13.7, as of the Sep 9 close. Analysts estimate a 9.14% annualized EPS growth for the next five years, which sounds fair when its 9.95% EPS growth of past five years is considered. With a profit margin of 14.0%, shareholders enjoyed a 3.40% dividend last year.
The stock is trading 7.93% lower than its 52-week high, while it has an O-Metrix score of 4.22. Target price is $70.10, which implies a 13.3% upside movement potential. Institutions own 58.72% of the stock, whereas it returned 2.2% in a year. Yields are consistently growing. Debt-to assets ratio is nearly stable for the last five quarters. Debt-to equity ratio is 0.3, well below the industry average of 1.4. Procter& Gamble is a Cramer favorite, as well. Moreover, it has a four-star rating from Morningstar. Wait for a pullback before buying.
Buffett sold about 5 million Kraft Foods shares, decreasing its holdings to a current value of nearly $3.45 billion. The Illinois-based food company was trading at a P/E ratio of 20.1, and a forward P/E ratio of 13.8, as of the Friday close. Five-year annual EPS growth forecast is 8.0%. Profit margin in 2010 was 5.9%, while it offered a nifty dividend of 3.36%.
Target price indicates an about 13.3% increase potential, while it has an O-Metrix score of 3.35. The stock is trading only 4.93% lower than its 52-week high, and it returned 11.5% in the last twelve months. Institutions hold 75.57% of the shares, whereas SMA200 is 6.17%. P/B is 1.6, and debt-to equity ratio is 0.6, both of which are way better than their industry averages. Debt-to assets ratio is nearly stable for the last five quarters. Analysts give a 1.90 recommendation for Kraft Foods (1=Buy, 5=Sell).
On the other hand, the company is paying the same dividend since Sep 2008. ROE is 8.5%, which is doubled by the industry average of 16.7%. Earnings decreased by 23.87% this year, and PEG value is 1.7. Moreover, the stock just double-topped. This is a risky stock from both fundamental and technical perspective. I think holding will do OK.
Buffett owns 1.55% of Johnson& Johnson, worth $2.76 billion. The healthcare titan has a P/E ratio of 15.6, and a forward P/E ratio of 12.3, as of the Sep 9 close. Estimated annualized EPS growth for the next five years is 5.8%, which sounds rational given the 7.35% EPS growth of past 5 years. Profit margin (18.3%) is slightly better than the industry average of 14.5%, while shareholders enjoyed a 3.58% dividend in 2010.
O-Metrix score of the drug manufacturer is 3.36, and it is trading 5.65% lower than its 52-week high. Gross margin and operating margin are 69.1% and 25.9%, respectively. Target price is $71.93, indicating an about 13.0% increase potential. The stock returned 5.5% in the last twelve months, and yields seem all right. Institutions own 64.78% of the shares. Debt-to equity ratio is 0.2, way better than the industry average of 0.8. Operating margin, profit margin, and ROE (20.2%) are moderate green flags. Average analyst rating is 1.6 (1=Buy, 3=Sell). Johnson& Johnson is also a Jim Cramer favorite. The company is relatively less volatile and can enter portfolios as a long-term buy.
Buffett holds 2% of ConocoPhillips, worth approximately $1.96 billion. The Texas-based oil company has a P/E ratio of 8.3, and a forward P/E ratio of 7.5, as of Friday’s close. Analysts expect the company to have an 8.0% annualized EPS growth in the next five years. Profit margin (5.1%) is slightly below the industry average of 7.1%, while it offers an attractive dividend of 4.11%.
Sales rose by 33.58% this quarter, and earnings increased by 28.09% this year. It has an admirable O-Metrix score of 7.66, while institutions own 73.19% of the stock. Target price is $83.37, which indicates a 29.7% increase potential. It is trading 20.06% lower than its 52-week high. Yields are awesome, and debt-to assets ratio is slightly going down for the last five quarters. In the last twelve months, the stock returned 15.9%. P/S is 0.4, and debt-to equity ratio is 0.3, both of which are moderate green flags. ConocoPhillips has a five-star rating from Morningstar. Returning serious profits is no sweat for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.