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Warren Buffett, chairman of Berkshire Hathaway (NYSE:BRK.A), has been called the most respected and successful investor in history. Under his leadership, Berkshire Hathaway has averaged a 21.4% compound annual gain in per share book value from 1965 to 2006. Recently he has become quite bullish on U.S. stocks and has started to make a number of acquisitions, with a focus on choosing great companies, which he believes are trading at a discount to their intrinsic value.

In this article I will examine five recent stock purchases by Buffett in an attempt to uncover stocks that present strong investment value, with the opportunity to provide strong investment returns over the long term.

Bank of America Corporation (NYSE:BAC)

Bank of America has a market cap of $63.64 billion and does not currently have a price to earnings ratio as it is operating at a net loss. Its 52 week trading range is $5.13 to $15.31. Its last trading price was $6.28. It reported second quarter earnings 2011 of $19.04 billion, a substantial decrease from first quarter earnings of $32.62 million. Second quarter net income was -$8.83 billion, a substantial decrease from first quarter net income of $2.05 billion. It has quarterly revenue growth of -52.60% and a return on equity of -6.73%. Bank of America pays a dividend with a yield of 0.70%.

One of Bank of America´s closest competitors is Citigroup (NYSE:C). Citigroup last traded at $26.02 and has a market cap of $75.93 billion. It has a price to earnings ratio of 8.04, quarterly revenue growth of 12.20% and a return on equity of 6.15%. It currently pays a dividend with a yield of 0.20%. Based on these key performance indicators, it is performing stronger than Bank of America.

Warren Buffett has taken a strategic stake in Bank of America by investing $5 billion, indicating that he believes in the strategy and vision of the company and its plans to return to profitability.

Bank of America’s second quarter 2011 balance sheet showed cash of $685.76 billion, an increase from first quarter cash of $662.37 billion. It has net tangible assets in the second quarter of $141.93 billion, a decrease from the first quarter of $147.45 billion.

Bank of America’s quarterly revenue growth of -52.60% versus an industry average of 10.40%, and a return on equity of -6.73% versus an industry average of 0.0%, demonstrates that it is under performing the majority of its peers.

Its stock price is currently being pushed lower by the market due to the poor outlook for the US economy and also because of its troubled mortgage division, which has racked up billions of dollars in legal bills, paid a large settlement to mortgage investors and is facing a nationwide investigation into its foreclosure practices. On face value it appears that any investment in Bank of America is risky and uncertain.

However, Bank of America possesses a strong national franchise and is the largest bank in its industry by market cap. In conjunction with revenue per share of $7.13 and a book value per share of $20.29, I understand Buffett’s decision to make a substantial investment in Bank of America. This investment will inject liquidity into the company and provide it with breathing space to resolve many of the issues it is now facing. With a management team strongly committed to turning the bank around, I believe at the current trading price, it represents a risky but a good speculative investment opportunity. I rate Bank of America as a buy.

Wells Fargo and Company (NYSE:WFC)

Wells Fargo has a market cap of $133.95 billion with a price to earnings ratio of 9.83. For a 52 week period its trading range has been $22.58 to $34.25. Its last trading price was $25.37. It reported second quarter earnings for 2011 as $22.01 billion, a slight decrease from first quarter earnings of $22.15 billion. Second quarter net income was $3.95 billion, an increase from first quarter net income of $3.76 billion. The company has quarterly revenue growth of 6.60% and a return on equity of 11.42%. It pays a dividend with a yield of 2.00%.

One of Wells Fargo and Company´s closest competitors is JPMorgan Chase and Co (NYSE:JPM). JPMorgan Chase and Co last traded at $32.38 and has a market cap of $126.25 billion. It has a price to earnings ratio of 6.91, quarterly revenue growth of 14.90% and a return on equity of 11.43%. It pays a dividend with a yield of 3.30%. This indicates it is performing on par with Wells Fargo and Company.

Buffett holds 352,327,608 shares of Wells Fargo and Company, purchasing 9,703,683 shares in second quarter 2011, which added to an existing holding of 342,623,925 shares. The average price per share is $31.30. Based upon the last trade price, this represents a return of 3.45%.

Wells Fargo’s cash position has improved, its second-quarter 2011 balance sheet showed $353.53 billion in cash, an increase from $335.82 billion in the first quarter. Its quarterly revenue growth rate of 6.60% is marginally lower than the industry average of 17.10% and its return on equity of 11.42%, is greater than the industry average of 6.70%. This indicates a well managed company performing ahead of many of its peers.

Based on the performance of Wells Fargo, I understand why Buffett has chosen to increase his position in the stock. I also consider the recent drop in the stock price, since the end of second quarter 2011, to represent a buying opportunity. I rate Wells Fargo and Company as a buy.

Verisk Analytics Inc (NASDAQ:VRSK)

Verisk Analytics has a market cap of $5.65 billion with a price to earnings ratio of 23.65. Its 52 week trading range has been $27.51 to $35.42. Its last trading price was $34.31. It reported second quarter 2011 earnings of $327.28 million, an increase from first quarter earnings of $312.87 million. Second quarter net income was $65.58 million, a marginal decrease from first quarter net income of $65.88 million. Verisk Analytics has quarterly revenue growth of 16.20% and is not generating a return on equity. It doesn’t pay a dividend.

One of Verisk Analytics’ closest competitors is Advent Software Inc (NASDAQ:ADVS). Advent Software last traded at $22.16 and has a market cap of $1.16 billion. It has a price to earnings ratio of 38.21, quarterly revenue growth of 15.60% and a return on equity of 11.30%. It doesn’t pay a dividend. This indicates that both companies are performing on par.

Buffett made a new addition to his portfolio, buying 2,101,125 shares of Verisk Analytics, in second quarter 2011 at an average price of $33.72 per share. Based on the last trading price of $34.31, a return of 1.75% has been made.

Verisk Analytics cash position has improved, the second-quarter balance sheet showed $51.97 million in cash, a decrease from $101.24 million for the first quarter. Verisk Analytics' quarterly revenue growth rate of 16.20% is marginally lower than the industry average of 16.90% and its return on equity of 0%, is less than the industry average of 15.80%. This indicates a company that is underperforming many of its peers.

At this time, based on Verisk Analytics quarterly earnings growth rate, return on equity and decreased balance sheet cash, I don’t agree with Buffett’s decision to purchase this stock. I rate Verisk Analytics as a hold.

Mastercard Incorporated (NYSE:MA)

Mastercard Incorporated has a market cap of $40.18 billion with a price to earnings ratio of 19.60. Its 52 week trading range has been $215.00 to $361.94. Its last trading price was $316.26.The company reported second quarter earnings 2011 of $1.68 billion, a decrease from first quarter earnings of $1.50 billion. Second quarter net income was $608 million, an increase from first quarter earnings of $562 million. The company is achieving quarterly revenue growth of 22.10% with a return on equity of 43.81%. It pays a dividend with a yield of 0.20%.

One of Mastercard’s closest competitors is Visa (NYSE:V). Visa last traded at $87.13, has a market cap of $60.30 billion with a price to earnings ratio of 16.98. It has quarterly revenue growth of 14.40%, a return on equity of 13.96% and pays a dividend with a yield of 0.70%. Based on these performance indicators, Visa is underperforming Mastercard.

Buffett holds 405,000 shares of MasterCard, with 189,000 shares purchased in the second quarter 2011 adding to 216,000 shares purchased in the first quarter. The total share holding was purchased at an average price per share of $257.82. Based on the last trade price, this is a return of 22.67%.

Mastercard’s cash position has marginally decreased, its second quarter balance sheet showed $3.37 billion in cash, a decrease from first quarter cash of $3.53 billion. This can be attributed to an increase in capital expenditures.

With quarterly revenue growth of 22.10% versus an industry average of 16.90%, and a return on equity of 43.81% versus an industry average of 15.80%, it is performing substantially better than many of its peers.

With an impressive increase in net earnings for the second quarter, a healthy quarterly revenue growth rate and a solid return on equity, combined with increasing market share through a recent deal with the restaurant chain Subway, I understand Buffett’s decision to purchase the stock. I rate Mastercard as a buy.

Dollar General Corporation (NYSE:DG)

Dollar General has a market cap of $13.01 billion with a price to earnings ratio of 20.08. For a 52 week period its trading range has been $26.65 to $38.59. Its last trading price was $38.10. The company reported second quarter 2011 earnings of $3.58 billion, an increase from first quarter earnings of $3.45 billion. Second quarter net income was $146.04 million, a decrease from first quarter net income of $156.97 million. It has quarterly revenue growth of 11.20%, a return on equity of 16.23% and it doesn’t pay a dividend.

One of Dollar General’s closest competitors is Dollar Tree Inc (NASDAQ:DLTR). Dollar Tree last traded at $78.10 and has a market cap of $9.54 billion. It has a price to earnings ratio of 21.66 and doesn’t pay a dividend. Based on these indicators, Dollar Tree is performing marginally more strongly than Dollar General.

Buffett purchased 1,497,800 shares of Dollar General in the second quarter 2011 at an average price of $32.83 per share. Based on the last trade price, a return of 16.05% has been made.

Dollar General’s cash position has worsened in the second quarter 2011, its balance sheet showed $113.05 million in cash, a substantial decrease increase from first quarter cash of $602.46 million. The decrease in balance sheet cash can be partly attributed to increased capital expenditures.

Some caution must also be exercised, as the earnings potential of companies generating revenue from the retail sector remains poor in the short term, due to a poor economic climate and high unemployment. A recent Goldman Sachs Economic Whitepaper predicts US second quarter 2011 growth to be 1% and forecasts the unemployment rate to remain above 7% until at least 2013. Although, Dollar General does operate at the discount end of the retail sector, which may experience some growth in poor economic times as consumers seek to decrease expenditure by seeking out discounted goods.

It has quarterly revenue growth of 11.20%, versus the industry average of 6.90% and a return on equity of 16.23%, versus the industry average 22.2%. This indicates it is a well managed company that is performing on par with its peers. However, due to the substantial decrease in cash and the poor economic outlook, I don’t agree with Buffett’s decision to purchase the stock. I rate Dollar General as a hold.

Source: Warren Buffett's 5 Newest Portfolio Picks