Analyzing Berkshire Hathaway's Top Consumer Stocks

Gayatri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the fiscal cliff approaching, I am looking for some defensive and deep value stocks to ride out the storm. Since Warren Buffett is one of the most revered value investors, I decided to start by scanning his top picks. I analyzed some of his top consumer holdings as they provide good yield and are relatively defensive with a proven track record of growth.

<table> <tbody> <tr> <td> <p><strong>Company Name</strong></p> </td> <td> <p><strong>Shares Held</strong></p> </td> <td> <p><strong>Forward PE</strong></p> </td> <td> <p><strong>Dividend Yield</strong></p> </td> </tr> <tr> <td> <p><strong>Coca-Cola </strong><br /> <span class="ticker" data-id="204186">(NYSE: <a href="http://caps.fool.com/Ticker/KO.aspx">KO</a>)</span></p> </td> <td> <p>400,000,000</p> </td> <td> <p>17.19</p> </td> <td> <p>2.70%</p> </td> </tr> <tr> <td> <p><strong>Procter & Gamble</strong><br /> <span class="ticker" data-id="204975">(NYSE: <a href="http://caps.fool.com/Ticker/PG.aspx">PG</a>)</span></p> </td> <td> <p>52,793,078</p> </td> <td> <p>16.33</p> </td> <td> <p>3.20%</p> </td> </tr> <tr> <td> <p><strong>Wal-Mart </strong><br /> <span class="ticker" data-id="206096">(NYSE: <a href="http://caps.fool.com/Ticker/WMT.aspx">WMT</a>)</span></p> </td> <td> <p>46,708,142</p> </td> <td> <p>13.41</p> </td> <td> <p>2.20%</p> </td> </tr> </tbody> </table>

I like Wal-Mart the most among the above stocks. Wal-Mart is trading at a forward PE of just 13.41x and provides a good investment both in bull and bear markets. Due to its discount retailing nature of the business, it is relatively immune in the downturn. Wal-Mart is well positioned for the rest of 2012 holiday season with significant investments in price, a strong assortment, deep inventory position, and an improved e-commerce platform to drive sales. The company likely gained market share in promotional November and Black Friday season given an expanded holiday layaway program which began in September as well as extended Black Friday hours.

The company’s solid momentum in the core US division, balanced approach to international growth, and ability to drive expense leverage makes it a good buy. The company’s low beta also makes it a good buy in current times given uncertainty around fiscal cliff. The company’s sales momentum and low-valuations makes it a good buy and are likely to drive stock going forward.

I also like Coca-Cola and Procter and Gamble. I expect Coca-Cola to post acceleration in profits going into 2013 given a lower cost inflation, higher concentrate pricing in Europe and neutral FX. Coke has underperformed the broader market in 2012 and I find it cheap at its current valuation.

I am bullish on Coca-Cola given its diverse geographic foot print and extensive network of capable bottling partners which give the company an access to growth opportunities around the world. I also expect the trend of consolidation among bottlers will boost the company’s operational efficiencies. The company is one of the best in class with clear strategic direction and a strong balance sheet. It makes a good core portfolio holding.

Procter and Gamble continues to make progress with its cost saving initiatives. At its recent investor conference the company maintained FY 13 guidance and increased the share buyback potential to $6 billion from $4 billion. The company’s aggressive new product pipeline and strategic price intervention made throughout 2012 should help the topline momentum going forward. This topline momentum coupled with the company’s commitment to cost cutting should help it fund aggressive emerging market expansion while posting competitive profit growth at the same time. In the developed markets also, the company’s prospects looks good given improving market share trends.

To sum it up, Wal-Mart’s low valuation and good holiday sales prospects make it a good buy. Coca-Cola looks good given potential EPS acceleration in 2013. P&G has both good top and bottom-line prospect making it an attractive buy.

 


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 The Coca-Cola Company and 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!

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