Analyzing Berkshire Hathaway's Top Buys

Gayatri 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 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 discussed his new buys from the last quarter in a previous article. In addition to new buys, it is also interesting to have a look at other stocks where his investment firm Berkshire Hathaway significantly increased its holdings. In this article I am having a look at three of his top buys which I believe makes good long candidates.

Wells Fargo & Company (NYSE: WFC): Berkshire Hathaway purchased 11,504,300 shares of Wells Fargo last quarter. Wells Fargo is the leading US bank with strong balance sheet. In the near term, Wells Fargo should benefit from strong mortgage origination income and improving housing values, which aid credit and operating costs, and increased income. These trends are likely to continue for next several quarters and Wells Fargo will continue benefiting from it. Improving efficiency with proposed expense reduction is also expected to provide incremental leverage going forward. Longer-term the company is likely to benefit from market share gain opportunity given its merger with Wachovia. The company continues to look for business/portfolio acquisition which should further help its inorganic growth. The company makes an interesting buy given better fee income growth opportunities with recent acquisition of loan portfolios, expansion of capital market and wealth management business, cost reduction plans. At attractive valuation of just 9.23x forward PE, the company is an ideal stock for long term investors.

General Motors (NYSE: GM): Berkshire Hathaway purchased 5,000,000 shares of General Motors last quarter. The company remains and interesting turnaround story. Its business continues to improve and the company has taken a lot of steps to divest its legacy pension liabilities which should help reduce some uncertainty around the company. GM reported solid 3Q beat driven by NA strength and strong EBIT margin of 8%. The company is likely to continue benefiting from improving North American SAAR and its strong position in Chinese market. At a forward PE of just 6.85x, the company looks cheap and can appreciate significantly from here.

National-Oilwell Varco (NYSE: NOV): Berkshire Hathaway purchased 1,345,600 shares of National-Oilwell last quarter. National-Oilwell is likely to increase its dividends given its very high free cash flow. According to Wells Fargo analyst Tom Curran "The company is beneficiary of a major secular theme: the upstream complex’s refleeting and retooling of drilling and completion units worldwide, both onshore and offshore". Also, National Oilwell’s M&A efforts should help continued expansion of its suite of capital equipment offerings. The company’s order outlook remains robust and its orders in the third quarter were at a solid $2.30 billion which included seven rig equipment for ultra deepwater floaters. The order/backlog trends are likely to surprise in 2013 as well with acquisitions providing additional source of upside.

To sum it up, Well Fargo’s strong capital position, low valuations and good EPS growth prospect makes it a good buy. General Motor’s operational turnaround and good prospects in US and Chinese markets makes it a good bet. National-Oil well’s strong order trend and good prospects of dividend increase makes it an ideal long candidate.  

GayatriSharma has no positions in the stocks mentioned above. The Motley Fool owns shares of Wells Fargo & Company. Motley Fool newsletter services recommend General Motors Company, National Oilwell Varco, and Wells Fargo & 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!

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