In this article, I would be discussing the top five companies where Warren Buffett's Berkshire Hathaway (BRK.B) increased its position in the December quarter. All of them offer excellent fundamentals and good value proposition for the investors with a medium to long term investment horizon.
DIRECTV (DTV): Berkshire Hathaway bought 16,099,000 shares of DIRECTV last quarter. It now holds 20,348,400 shares of DIRECTV. DIRECTV, Inc. provides digital television entertainment in the United States and Latin America. The company provides direct-to-home digital television services, multi-channel video programming distribution services, as well as video-on-demand services, approximately 160 national high-definition television channels and four 3D channels.
DTV reported an overall better fourth quarter, with Latin America growth being the most positive. Revenues grew by 13% with the U.S. contributing to 9%, while Latin America posted 33% growth. DTV Latin America subscriber growth was better than expected with 590k adds, while the U.S. ARPU and EBITDA also came ahead of expectations.
In a matured, low growth U.S. market, DTV is shifting its focus to customer management and retention, non-programming cost mitigation and negotiating digital managing rights for programming contracts. This selective targeting of higher credit scoring, higher ARPU subscribers and additional flexibility into programming contracts is expected to drive up margins.
Further, the company continues to buy back shares rapidly. It announced a $6 billion repurchase authorization for 2012. Overall, I believe, DTV is expected to benefit from its focus to higher end customer base in the U.S. and fast growing Latin American markets, providing substantial upside potential in the near term.
Davita, Inc. (DVA): Berkshire Hathaway bought 2,684,500 shares of Davita last quarter. It is a new position for Berkshire. DaVita is a leading provider of outpatient dialysis services in the United States. It offers services for patients suffering from chronic kidney failure or end stage renal disease. Its services include outpatient dialysis, hospital inpatient hemodialysis, and ESRD laboratory services.
DVA recently reported superior 4Q 2011 results, with 13.1% revenue growth and an EPS of $ 1.58 against the consensus estimate of $ 1.48. This earnings beat can be attributed to strong same store sales growth and controlling per-treatment costs. DVA'a operating cash flow at $ 1.18 billion was above guidance. Going forward, the company's cash generation ability remains strong, with expected FCF yield of 10%.
The biggest opportunity ahead for the company is from integrated care arrangements in ESRD for dialysis providers. The RFP from CMS is also expected in the next couple of months. DVA is well positioned for the integrated care model, and this could provide its stock price with considerable upside potential. Other catalysts for upward movement of stock include share repurchases and long term growth opportunities from its international expansion.
International Business Machines Corp. (IBM): Berkshire Hathaway bought 6,556,947 shares of IBM last quarter. It now holds 63,905,931 shares of IBM. IBM is a good long candidate, being a consistent performer in the past few years, and outperforming the S&P 500 in 5 of the past 6 years. I like the defensive nature of the business, given that its high visibility annuity business accounts for more than 50% of revenue and 70% of profits, which will support the company during downturn. Trading at around 12x forward earnings, the stock does not look pricey.
Intel Corp. (INTC): Berkshire Hathaway bought 2,162,000 shares of Intel last quarter. It now holds 11,495,000 shares of Intel. Intel is a good GARP stock. Intel's growth is significantly outperforming the broader PC markets. Going forward, cloud computing and secular growth in servers, and a strong product pipeline, are likely to drive good growth for the company. In addition, it also has a good share growth opportunity in the mobile space. Trading at 10.25x forward earnings, the stock does not look expensive, and there is a good chance of multiple expansion. A 3.5% dividend yield is an added benefit for investors looking to buy the stock.
Wells Fargo & Company (WFC): Berkshire Hathaway bought 22,333,820 shares of Wells Fargo last quarter. It now holds 383,703,628 shares of Wells Fargo. Wells Fargo is one of the well capitalized banks with a strong balance sheet. At a current valuation of less than 8.6x forward PE, it appears to be a very good investment for investors with low risk appetite who are looking to build a position in financial services sector.