Warren Buffett’s Favorite Services Stocks
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Warren Buffett’s Berkshire Hathaway filed its 13F for the third quarter of the year in November, disclosing many of its long equity positions from the end of September. Sometimes these filings aren’t entirely representative of what a hedge fund or other notable investor currently owns, because of the delay, but because of Berkshire’s longer-term perspective and larger size we think that they are a fairly good representation of where Buffett’s money is right now. It’s also possible to consider the top stocks in different sectors and take a brief look at them to see if they might be good values for other investors. Read on for our quick take on five of the largest Berkshire holdings in the services sector or see the full list of Buffett's stock picks.
The top services pick was discount retailer Wal-Mart Stores (NYSE: WMT), as Berkshire reported owning 47 million shares. Wal-Mart’s most recent fiscal quarter ended in October, with the company reporting a 9% increase in earnings compared to the same period in the previous fiscal year. Considering its size ($230 billion market cap) and its trailing earnings multiple of 14, as well as the fact that it’s fairly well protected from a bear market, Wal-Mart looks like a good value. However, it might not be as good a buy as dollar stores. Cliff Asness’s AQR Capital Management was another major holder of Wal-Mart during the third quarter.
Television entertainment provider DIRECTV (NASDAQ: DTV) was another of Berkshire’s top ten stock picks with a position of 30 million shares. DirecTV trades at 12 times trailing earnings, and revenue and net income were both up last quarter versus a year earlier. Wall Street analysts expect continued growth, with a forward P/E of 10 and a five-year PEG ratio of 0.7. Renaissance Technologies, founded by billionaire Jim Simons, increased its own stake by 66% between July and September (find more stocks Renaissance was buying). We think it’s worth it to take a closer look at the company.
Buffett also liked Moody’s Corporation (NYSE: MCO), keeping his position steady at 28 million shares. The $11 billion market cap ratings agency and risk management company is up 49% in the last year, and carries trailing and forward P/E multiples of 18 and 16, respectively. Tiger Global Management owned 2.3 million shares of Moody’s at the end of September, according to 13F filings. Depending on how rapidly the company manages to grow going forward it could be a good buy.
The Washington Post Company (NYSE: WPO), which actually managed flat revenue in the third quarter compared to the same period in 2011, was another of Berkshire’s services picks with 1.8 million shares in the portfolio (unchanged from three months earlier). Southeastern Asset Management, a mutual fund managed by Mason Hawkins, also reported a large position in the stock. Washington Post also acts as an education company in addition to newspapers and other media. The sell-side expects a decline in net income next year, and there’s high short interest. We don’t think that it’s a top priority for future research.
Berkshire reported owning 5.5 million shares of Liberty Media (NASDAQ: STRZA), an entertainment company whose assets include Starz and the Atlanta Braves. This position was unchanged from what Buffett had reported in the 13F for the second quarter of 2012. Liberty Media trades at 33 times consensus earnings for 2013, so it’s difficult to see a value case for the company. Billionaire David Einhorn’s Greenlight Capital owned about 970,000 shares (see David Einhorn's stock picks). With revenue up only 3% last quarter compared to the third quarter of 2011, we would avoid the stock.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Moody's. 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!