Warren Buffett's Newest Conviction Buy Ideas

Includes: BAC, BRK.A, BRK.B, DG, MA, VRSK, WFC
by: Vatalyst

Warren Buffett, also known as the Oracle of Omaha, is noted as the greatest investor of all time. His famous words “Be fearful when others are greedy and greedy when others are fearful” have been the motto of many investors. To this day, when he buys or sells a stock, people will often analyze and even follow his very same actions. Below are five stocks that have recently been added to the Berkshire (NYSE:BRK.A) portfolio.

Bank of America (NYSE:BAC) – Typically when Warren Buffett buys a stock, once it’s announced, other investors are to follow suit. As of September 1st, Buffett purchased 700 million shares of the bank. This stock is a new buy for him as he purchased a total of 6.5% of the shares outstanding. As of June 30th, Buffett has approximately 38.8% of his portfolio in the Financials Sector. This purchase of BAC is only going to increase that number. Buffett has even agreed to purchase 50,000 preferred shares at $100,000 each for a total investment of $5 billion dollars with BAC. The company does have a negative earnings per share of -$1.66 but does currently offer an annual dividend of $0.04. Even if the price of the stays the same over the course of a year, the earnings from the dividend alone will equate to $28 million dollars. Unfortunately, because the company has negative earnings per share, there is no price to earnings ratio to use to compare to the industry, which is at 5.6. With the earnings per share in the negative, the stock price has suffered and many investors would shy away from this company. However, such a situation could make the company undervalued and a prime target for Buffett to purchase.

Wells Fargo & Co. (NYSE:WFC) – As of the end of the second quarter, June 30th, Warren Buffett added to his long standing position in WFC. The purchase was an additional 9,703,683 shares which is 2.83% of the shares outstanding. The purchase has a 0.52% impact on his portfolio. The company has a price to earnings ratio of 9.0, slightly lower than the industry average of 9.5. WFC also offers a dividend of $0.48 annually which is a 1.97% yield. Unlike its competitor BAC, WFC has a positive earnings per share of $2.58. However, the company still trails behind competitors Citigroup, Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM) which have earnings per share of $3.24 and $4.69 respectively. The average price at which Buffett purchased WFC is $31.30. The reported purchase price of his newest addition was at $28.41. Currently the stock has a price around $26 per share, making the stock look like a possible value play. With a mean target price of $33.11, it is predicted that the stock will rise. If the stock does reach this value within the year estimated, it could very well outperform the market as a whole.

Verisk Analytics Inc. (NASDAQ:VRSK) – This is another company that has been newly added to Buffett’s portfolio. Reported June 30th, the purchase was at an average price of $33.71 for a total of 2,101,125 shares outstanding. The total amount purchased is only about 0.14% of Buffett’s portfolio. Although it has been said that Buffett prefers a stock that issues a dividend, VRSK currently does not. The company does report an earnings per share of $1.45. This gives VRSK a price to earnings ratio of 23.4, which is only slightly higher than the industry at 20.6. VRSK’s direct competitors are privately held, making it difficult to directly compare.

One of the reasons VRSK may have made sense for Buffett and Berkshire Hathaway (NYSE:BRK.B) is that the company specializes in analytics and support for the insurance industry. This is one of the main areas of operation for Berkshire. Given that this is a new position for Buffett, it will be interesting to see what the plans are for the company. Additionally, there could potentially be an increase in volume from investors who choose to follow Buffett’s investing footsteps. In the long run, this is a stock that should be kept on one’s watch list to see where it’s headed.

MasterCard, Inc. (NYSE:MA) – By the end of the second quarter, Warren Buffett almost doubled his position in the credit card company by adding 87.5% of MA to his portfolio. Currently Buffett holds 405,000 shares in the company. The common shares were purchased at an average price of $274.05, and since then have already realized a gain of about 24%. The company currently has extremely profitable earnings per share at $16.20, giving it a price to earnings ratio of 21.1. This is right in line with the industry which is at 20.9. MA’s main competitors, American Express Company (NYSE:AXP), Discover Financial Services (NYSE:DFS), and Visa, Inc. (NYSE:V) also have profitable earnings per share, but are much lower that MA. Visa, Inc. is the closest competitor with an earnings per share reported of $5.13. The company does offer a dividend, although it is not very high. Currently, the yield is 0.20% or $0.60 annually. MA is clearly the company to beat in this industry and previous trading prices could have many investors considering the stock undervalued. Based on the numbers, it does not look like this company is going to stop making money any time soon.

Dollar General (NYSE:DG) – DG is another one of Buffett’s newest stocks to own. Earlier this year, Buffett purchased 1,497,800 shares of the discount retailer. The average price the stock was purchased at was $32.81 and has already realized a gain of 22%. DG currently has an earnings per share of $1.89 which gives it a price to earnings ratio of 21.30. This is slightly higher than the industry which averages 15.2.

Part of what brings the industry’s ratio down is its leader, Wal-Mart Stores Inc. (NYSE:WMT), which has a price to earnings ratio of 11.97 and earnings per share of $4.70. One weakness DG does have is its quick ratio of only 0.10, but it does make up for it with the current ratio of 1.50 and low debt to equity ratio of 0.64. While the stock is currently at $39.92, it is still trading near its recent 52-week high of $40.26. Although some investors may choose to sell when a stock reaches a high with a price to earnings ratio of the industry, Jim Cramer currently ranks this stock as one to buy.

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