Billionaire Warren Buffett's Big Changes
Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Billionaire investor and Berkshire Hathaway founder Warren Buffett is a pupil of legendary investor Benjamin Graham. Berkshire is a major conglomerate investing in a number of companies across a number of industries, focused on acquiring great companies at a discount to intrinsic value. Since Buffett is one of the world's top investors, I found it useful to take a look at what Buffett and Berkshire were buying and selling during the fourth quarter (see all of Buffett's new picks).
Buffett sold off...
Berkshire dumped 34% of its stake in Johnson & Johnson (NYSE: JNJ) during the fourth quarter. Johnson & Johnson pays a decent dividend yield at 3.2%, but its 60% dividend payout ratio is not quite as appealing. I generally look for a dividend payout of less than 50% to ensure a company can remain flexible during economic downturns. Valuewise, Johnson & Johnson has a PEG of 3.0; anything above 2.0 is considered expensive.
For fiscal 2013, Johnson & Johnson forecasts earnings to come in between $5.35 and $5.45 per share, but analysts' consensus calls for $5.50. This lowered guidance includes a $0.25 hit from U.S. health-care reform. The company, which makes drugs, health-care products, and medical devices, should still see supply issues due to its product recalls and suspension of manufacturing at its Fort Washington plant. The company doesn't expect that site to be ready for the FDA certification review process until late 2013 (see more about why J&J is heavily shorted).
Boosting Stakes In...
Berkshire added to its General Motors (NYSE: GM) stake, upping its shares by 66% and elevating the car company to thirteenth in Berkshire's portfolio. GM is also one of billionaire David Einhorn's top bets (read more about Einhorn's picks). GM plans to increase its North American capital expenditures to $1.5 billion in 2013, spending more on plant expansions. It hopes to lift profit margins in the region to 10% in the next three or four years, from 8% currently. The company is also hoping for break-even results in Europe by 2015.
GM has a solid growth outlook, with Wall Street expecting it to grow EPS at 15%. Couple this with the car maker's forward P/Eof 8, and it appears the company is a solid growth-at-a-reasonable-price opportunity, with a PEG of 0.5. The company is also turning around its profitability from an operating margin standpoint -- with a five-year average operating margin of a negative 1.5% -- but the company has a trailing-12-month operating margin of 0.4%.
Buffett boosted its stake in DirecTV (NASDAQ: DTV) to 34 million shares, an increase of 15% from its Q3 stake, now being Berkshire's eighth-largest holding. Latin America is expected to be a major growth story for the company in the coming years, and it is also looking to focus on a more premium brand, targeting high-end customers that are willing to pay for its costly interactive services and premium programs.
From a valuation standpoint, DirecTV trades cheaply when compared to major competitor DISH Network.
Price to Earnings
- DirecTV 8.5
- Dish Network 14
Price to Cash Flow
- DirecTV 6
- Dish Network 10
DirecTV is another "growth at a reasonable price" opportunity that Buffett is invested in; the satellite company trades at a 0.7 PEG.
mhargra has no position in any stocks mentioned. The Motley Fool recommends General Motors and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. 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!