Analyzing Warren Buffett's New Buys

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Warren Buffett is well known for his value buys. He buys companies which are trading at valuations significantly lower than their intrinsic values and holds them for long term. I scanned Berkshire Hathaway’s latest 13F filing for the stocks where Buffett recently initiated new positions. There were four new names in the list Media General (NYSE: MEG), Deere and Company (NYSE: DE), Wabco (NYSE: WBC) and Precision Castparts (NYSE: PCP). Here’s a look at these stocks in detail.

Deere & Company: Berkshire Hathaway purchased 3,978,767 shares of Deere & Company last quarter. Deere is trading at a forward PE of 9.63. According to the sell side consensus estimates, it is expected to post an EPS of 8.34 in the current year and 8.87 next year. Its topline is expected to grow 5.60% in the current year and 3.70% next year. It has a dividend yield of 2.20% at current share price.

Deere is one of the best managed companies in the agriculture sector. It’s exposure to relatively defensive agriculture sector which is more dependent on farm economics rather than broader macros make it a good addition to the portfolio. Strong agri-commodity prices continue to provide support to agriculture equipment demand in North America and Europe and Deere given its industry leadership position is a natural beneficiary. I believe the company can significantly raise its dividend going forward given its strong cash generation and long term track record of returning cash to the shareholders.

Wabco Holdings: Berkshire Hathaway purchased 1,599,064 shares of Wabco last quarter. Wabco is trading at a forward PE of 12.45. According to the sell side consensus estimates, it is expected to post an EPS of 4.34 in the current year and 4.80 next year. Wabco’s business fundamentals have likely bottomed and the company can see re-acceleration in 2013. The company’s valuation at 12.45x forward PE sufficiently discount the risks and I like the company’s long term potential given favorable competitive structure and strong management team which has managed well through past downturns.

Precision Castparts: Berkshire Hathaway purchased 1,248,901 shares of Precision Castparts last quarter. Precision Castparts is trading at a forward PE of 15.70. Its topline is expected to grow 16.60% in the current year and 15.20% next year. According to the sell side consensus estimates, it is expected to post an EPS of 9.93 in the current year and 11.69 next year. Precision Castparts is likely beneficiary of strong aerospace, industrial gas turbine, and infrastructure demand. The company is one of the best operators in metal castings and forgings market and is gaining market share through pricing strategies and long term contracts. In addition, the company is also growing inorganically. The company recently entered into an agreement under which it will acquire Titanium Metals which will help it in vertical integration. I like the company’s long term growth potential and believe it is attractively priced at 15.70x forward PE.

Media General: Berkshire Hathaway purchased 4,646,220 shares of Media General last quarter. Media General has become an attractive buy after divesture of its newspaper assets. These divestures will help it reduce corporate overheads by $10 million annually and also reduce capex requirements. The company now operates in two main businesses – Broadcast TV and Digital Media. Both these businesses are doing well and are likely to act as positive catalyst for the stock.

To sum it up, I like Media General after its divesture of newspaper assets given a good outlook for broadcast and digital media division. Deere is likely to continue seeing strong demand given healthy farm economics. Wabco looks good given its low valuation and potential reacceleration in business fundamentals in 2013. Precision Castparts is an interesting market share gain story both from organic as well as inorganic route.


GayatriSharma has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Precision Castparts. 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!

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