Buffett's Buffet of Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When approaching the bountiful buffet of stocks available in the market you can’t buy everything. There is a strategy you can use similar to that of navigating one of those enormous Chinese buffets. Warren Buffett has a clearly defined strategy, too, uncannily paralleling my Chinese buffet system.
First off, recon or as they used to say in film noir ‘casing the joint.’ It’s so very important to look at everything because you can only stomach so much. Are you going to waste your time and money for cheap dishes (or stocks) that you can get anywhere or are you looking for something special and tasty that’s worth your investment?
Plan a taste of only the most interesting dishes. Buffett has a tiny percentage of his portfolio in 30 of his 37 positions. Be sure to try something new just like Warren has in Phillips 66 and National Oilwell Varco, his newest purchases. You do not want to fill up at his point. This is just your first plate.
That was yummy but now you spy a tiny elderly Asian woman with perfect posture balancing two dozen crabs in a stack on her plate. They’re a lot of work but they won’t fill you up with grease or fat and will leave you plenty of room for the big winners. This would be the equivalent in Buffett’s portfolio of his 4.9% in Procter & Gamble Co. (NYSE: PG) and the smallest of his five major holdings. The P/E isn’t too rich at 18.33 and has the healthy dividend of 3.40%. You don’t have to rush to get this one. It is pennies below its 52 week high of $67.95 and is facing some intense competition from Colgate-Palmolive, Church & Dwight and Kimberly-Clark. Good news on those will make Procter & Gamble pull back. This is plate number two.
And it’s time for plate number three. Ahh, servers are bringing out a fresh steaming tray of one of Warren’s favorites, American Express Company (NYSE: AXP) which fills 11.9% of his portfolio. American Express doesn’t have that big Procter & Gamble dividend; it’s only 1.40% but it has a 13.47 P/E. It’s almost 10% off its 52 week high, but you know Warren loves the buybacks and it has a $5 billion buyback in place. Those annual fees they charge for the cards haven’t deterred a lot of cardholders as American Express has maintained its number one J.D Power rating for customer satisfaction for six years. Good customer service is something Warren values highly.
You can also add some International Business Machines Corporation (NYSE: IBM) his third largest position. IBM has served him well, moving from the low $80’s in 2009 to its all time high of $210.69 just recently. It has a 14.37 P/E despite its run up and a 1.40% yield. Since getting out of hardware to focus on software solutions for business the company has soared but IBM has $32.05 billion in debt to its $12.39 billion in cash and only a 0.90% hold by insiders. Don’t gobble this one down. Take it easy.
Plate four is the biggest one of all, Warren’s #2 favorite, Wells Fargo & Co. (NYSE: WFC) his Kung Pao Chicken, the go to name that always pleases. Wells Fargo just might end up as his most savvy financial pick up 30% since 2009 and outperforming the big investment banks this year. Buffett holds a 7.42% of the share of the float for an 18.5% share of his portfolio. As the Oracle of Omaha it seems he forecasts robust loan growth for Wells Fargo to power $17.7 billion in earnings. He probably also likes its 11.37 P/E and the 2.60% dividend.
And finally, you have to wash this all down with something and everyone knows Warren just loves, loves, loves The Coca-Cola Company (NYSE: KO). It’s his largest holding at 21% of his portfolio and he drinks the stuff everyday, too. He just can’t get enough of it. It has a higher P/E than the rest at 20.37 but it has a 2.60% yield, just like IBM. Coca-Cola has raised that dividend annually for a decade. Warren’s BFF Bill Gates purchased 11.7 million shares for the Bill & Melinda Gates Foundation. Warren may not like low cal Coke but he loves low beta Coke. The quarterly earnings growth at -0.40% year over year isn’t something to write home about nor is the quarterly revenue growth at 2.70% but the dividend consistency is what makes Coca-Cola tasty. Coca-Cola could go below $36 on a market meltdown which would be a more attractive entry point.
What’s For Dessert
So in four plates you’ve had a fantastic value of a meal and you are just beaming with bonhomie and fellow feeling. You’ve paced yourself well and now you think there’s still room for a little more. Something sweet like the Jell-O or the Chinese cookies. Don’t. It will only disappoint you. Save some room to digest. In other words, keep a little cash on the sidelines. You’ll thank me later.
Maybe Warren’s favorites don’t tempt you. You’re free to pick and choose but the strategies remain the same. Recon, tiny tastes, pacing yourself and then filling up with the best stuff will make you a Buffett or buffet connoisseur.
Now, loosen your belt and open up your fortune cookie and see if it doesn’t say,” You are one savvy investor.”
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines, The Coca-Cola Company, and Wells Fargo & Company and has the following options: short OCT 2012 $55.00 puts on American Express Company, short OCT 2012 $60.00 calls on American Express Company, long OCT 2012 $65.00 calls on American Express Company, short OCT 2012 $33.00 puts on Wells Fargo & Company, and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend American Express Company, The Coca-Cola Company, The Procter & Gamble Company, 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.If you have questions about this post or the Fool’s blog network, click here for information.