Three Stocks From Warren Buffett's Portfolio
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Warren Buffett is one of the most iconic names when it comes to investing. Buffett has some fairly simple rules for investing. He looks for value over a long period of time and associates himself generally with blue chip companies that he believes can deliver the sort of value he is expecting. It isn't going to make you a killing in the market; however, it will give you a fairly good and well diversified portfolio. After the quarterly 13 F filings, I went through Warren Buffett's portfolio, so to speak. Here are three stocks that Buffett’s Berkshire Hathaway had at least $100 million invested in at the end of September and pay dividend yields of at least 3%.
Procter and Gamble (NYSE: PG)
Procter & Gamble was actually one of Berkshire’s five largest positions by market value as the holding company reported owning nearly 53 million shares of the personal products company behind brands such as Gillette, Bounty, Duracell, and Olay. The firm has been generating economic value for shareholders with relatively stable operating results for the past few years. The company boasts some of the most recognizable brands in the consumer goods market, and although competition is fairly severe, still retains a fairly large chunk of market share. Procter & Gamble has a good combination of strong free cash flow generation and manageable financial leverage. I expect the firm's free cash flow margin to average about 14.8% in coming years. The firm sports a very nice dividend yield of 3.3%. I expect the firm to pay out about 57% of next year's earnings to shareholders as dividends, and Procter & Gamble can also boast a low beta of 0.3 to appeal to defensive investors.
ConocoPhillips (NYSE: COP)
ConocoPhillips, at a market capitalization of $70 billion, isn’t quite as large as the big names in oil & gas such as Exxon Mobil Corporation or BP, but it is still a major global integrated oil and gas company. Over the past decade, the company has generated total returns of 14.9% per year. ConocoPhillips reported adjusted earnings of $1.8 billion during its third quarter, compared to $1.9 billion in the same period a year ago. Although earnings were impacted by lower oil and gas prices, the firm had some positive news about recent performance. The company is beefing itself up in Eagle Ford and Bakken and also expects growth from the Canadian oil sands. Looking ahead, ConocoPhillips expects to sell off another $8 billion in assets before the end of 2013, and achieve average annual production growth and margin expansion of 3-5%. The company generated $2 billion in proceeds from asset distribution which has helped its balance sheet to a small extent. One of the negatives to note, however, is the fact that the firm pulled in $3.9 billion in cash from operations during the quarter, but such cash flow performance wasn't sufficient to cover both capital spending and dividend payments. This may adversely affect dividend payments in the coming years
General Dynamics Corporation (NYSE: GD)
General Dynamics Corporation focuses on manufacturing aircraft and combat vehicles and systems. General Dynamics Corporation offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; military and commercial shipbuilding, and communications and information technology. In October, the company announced third-quarter 2012 operating earnings of $1.70 per share. General Dynamics generated total revenue of $7.93 billion in the reported quarter versus $7.85 billion in the year-ago quarter, reflecting a paltry growth of 1%. The Aerospace and Marine systems segment provided positive contribution to the company's bottomlines, but was held back by weak performance from Combat Systems and Information Systems and Technology Aerospace segments. The Federal Government's planned budget cuts in military expenses hasn't helped the company at all in the market. The stock price has been fairly flat over the past year while the S&P 500 has increased by 17%. The business itself has been holding steady and the company trades at 9 times earnings on a trailing and a forward basis. This means that while dividend yield may not be spectacular in the coming years, the current yield of 3.3% is pretty high and comes attached to a company that is valued fairly cheaply.
These are stocks that Warren Buffett’s company has more than $100 million in. Value from investing in these companies will only be attained when held over a long term – which is one of Buffett’s mantras when it comes to investing. A patient investor is definitely going to benefit from investing in any of these companies.
ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of General Dynamics. Motley Fool newsletter services recommend The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!