4 Graphs Of Warren Buffett's Top Bets

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Includes: AXP, BRK.A, BRK.B, CBI, DVA, GM, GS, IBM, KO, LEE, MCO, SNY, T, WFC
by: Joe Leider

Summary

If you’re a value investor and are fishing for good ideas, you could certainly do worse than to fish in the Berkshire pond.

With so much cash, Berkshire is biased towards larger companies.

Some nuggets stick out using some interesting data visualizations.

With $106 billion to stash away, Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) depends on making good financial decisions. If you're a value investor and are fishing for good ideas, you could certainly do worse than to fish in the Berkshire pond as shown by this CNBC portfolio tracker.

But for me, a table isn't enough, so let's look at some graphs of Berkshire's portfolio to see if we can spot Buffett's more confident bets. Below is the same data as in CNBC's tracker, but showing percentage of Berkshire's total portfolio. Four main holdings stick out: Wells Fargo (NYSE:WFC), Coca-Cola (NYSE:KO), IBM (NYSE:IBM) and American Express (NYSE:AXP). These four stocks account for more than 60% of BRK's public portfolio.

But with $106 billion to invest in public companies, of course Berkshire is biased towards larger companies. We can see this in the scatter plot below. The larger the market cap, the more Berkshire is likely to invest.

We can see something more. Anything above the regression line is a company that Buffett has taken a special interest in. Those below the line are, I'm sure, well analyzed and regarded. But I feel like with so much money, they are just safe places to stash a bunch of free cash.

We know that Buffett's big bets are on American Express, IBM, Coca-Cola and Wells Fargo, but what about smaller companies where he's taken a special interest on a weighted basis? They include DaVita HealthCare (NYSE:DVA), Moody's (NYSE:MCO) and DirecTV (NYSE:DTV).

Maybe instead of just looking at what Buffett holds, we want to fish in his pond, but find particularly low P/E or P/B stocks that fit with our own strategies. Below are all the stocks in Berkshire's portfolio (minus Moody's because its P/B is a very negative outlier) by price/earnings, price/book and holding value (where the lines bubble).

If you want to focus on low-P/E companies that Buffett holds a lot of, then IBM, Wells Fargo, and American Express are for you. If you like low-P/E companies regardless of holding percentage, then General Motors (NYSE:GM), Chicago Bridge & Iron (NYSE:CBI), Sanofi (NYSE:SNY), Lee Enterprises (NYSE:LEE) and Goldman Sachs (NYSE:GS) stick out. Because Buffett doesn't seem to seek out low price/book ratios like he does low price/earnings, I'll leave that for another post.

To see how much Buffett likes companies with low P/E, have a look at the scatter plot below. As you can see, Berkshire's biggest holdings are mostly under a forward P/E of 20. Coca-Cola sticks out as a particularly large holding (and somewhat higher forward P/E), but it's also one of those companies less likely to be upended, so more worthy of a higher valuation.

The companies off to the right are much smaller holdings, potentially riskier bets. I would look further into them out of sheer curiosity, but that's a whole other post.

Which of Buffett's stocks do I like in particular?

  • Wal-Mart (NYSE:WMT): This is a great stock because it combines two things that I love. First of all, it's one of those companies that could last forever. Second of all, with a forward P/E around 15 and dividend yield at 2.44%, it offers great value. In a long-term, low-interest rate environment like now, Wal-Mart is a keeper.
  • Chicago Bridge & Iron: This is a bit riskier, but with an amazing forward P/E around 8. Over the last year, this stock has dropped 38%. This is an extremely undervalued company. With Berkshire Hathaway a major investor, I have to think CBI has a tremendous upside.
  • Wells Fargo: Wells Fargo is a juggernaut and also offers a great valuation. Read more at my past article on bank balance sheets.
  • General Motors: While I do believe car industry stocks are undervalued in general, and I think GM is a great buy, I wonder if Buffett is going against his own advice. GM is the cheap company, but on further analysis, Toyota (NYSE:TM) is a great company.
  • Verizon (NYSE:VZ): Here Buffett gets it right again. Verizon has great value when compared to free cash flow, and it offers very good dividend income. Compared to other major telecoms, it's certainly best in class.

Maybe you're into the value investing principles laid out by Benjamin Graham in The Intelligent Investor, and you want to pick your stocks, but you just don't have the time to read five years of financial statements. It becomes more important to look in the right places. I hope the above visualizations have pointed out some interesting large and medium cap companies, vetted by the world's great value investor.

Disclosure: The author is long CBI, KO, WFC, WMT.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.