5 Berkshire Companies With Amazing Returns On Equity
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When investors look for return on equity (ROE), they are generally considering how well a company has been able to reinvest the resources they have been provided by their stockholders. In other words, the percentage of return on equity can give an investor an idea of how efficient the company is at generating additional revenue. Buffett, being the type of investor that he is, would certainly take the percentage of return on equity into consideration, when determining whether a company has the potential to make money. A few of these investments were likely picked by Buffett’s investment managers hired this year: Todd Combs and Ted Weschler. We looked at five of Berkshire’s current stock picks with a return on equity of greater than 15%.
Starting the race with a return on equity of 23.24% is heath care company DaVita (NYSE: DVA), specializing in kidney care. Based out of the United States, DaVita offers a range of kidney care services, including nocturnal dialysis, education in chronic kidney disease and diet assistance. Born out of the restructured company Total Renal Care in 1999, DaVita has managed to turn its situation around and seen far improved financial results over the past 11 years.
Also environmentally conscious, DaVita was recognized by the United States Environmental Protection Agency after creating a number of sustainability programs to reduce their footprint, such as reusable dialyzers, that have been estimated to reduce medical waste by 8.5 million pounds per year. That keeps clients happy and their annual return will keep Buffett happy, given that DaVita have seen a good year. Excluding a short-lived drop in May of this year, DaVita has seen a steady rise in value in the market since October 2011 and has finished the year in a good position, currently enjoying an overall return of 40.7% for the past 52 weeks.
Hot on their tails are Wal-Mart Stores (NYSE: WMT), currently with a return on equity of 23.49%. Wal-Mart is reported to be the third largest public corporation in the world and employs more than two million employees. Founded in 1962 and still a family owned business, Wal-Mart is a multinational corporation, operating out of 15 countries as a collection of warehouses and discount department stores under a series of names.
Wal-Mart is also another company attempting to maintain the environment by implementing a number of environmental strategies in 2005, including a ‘zero-waste’ goal. Part of their ‘zero-waste’ goal included opening a series of experimental stores in the United States, that were designed to run on solar panels and wind energy, plus a year-long research project into their environmental impact and ideas for improvement. Wal-Mart continues to be a big name in discount shopping for consumers around the world and their performance on the stock market certainly isn’t something to sniff at. Seeing continued growth over the past 12 months, Wal-Mart’s current return for the past 52 weeks is a nice healthy 23.26%.
Another name you will recognize is The Coca-Cola Company (NYSE: KO). The Coca-Cola Company is best known for its leading product Coca-Cola or “Coke,” first invented by an American pharmacist. A multinational public company, The Coca-Cola Company now sells non-alcoholic beverages in over 200 countries across the globe and is believed to have one of the most famous brands the world has ever seen and has also bought a series of other well-known brands over the years, including Minute Maid, Fuze Beverage and Columbia Pictures, which is later sold to Sony.
The Coca-Cola Company also uses it market weight to lobby against increasing taxes on soft drinks and is said to have as many as seven different lobbying firms working for its cause, costing in excess of $4.5 million each year. While no one likes the tax man, this won’t be seen as money well spent to some, considering the global state of obesity, particularly in the western world. However, spending a cool $4.5 million doesn’t appear to be making a massive dent in The Coca-Cola Company’s overall profit, considering their yearly revenue is believed to be over $46 billion. Plus, The Coca-Cola Company is certainly doing well on the stock market, seeing an overall return of 11.26% for the past 52 weeks, while experiencing fairly steady continued growth since October 2011, and a return on equity of 25.80%.
Another public company that Buffett favors is Viacom (NASDAQ: VIAB), in 4th place with a current return on equity of 27.41%. Viacom is a public mass media company that specializes in cinema and cable television, and is the world’s fourth largest media conglomerate. A baby of the CBS Corporation, who still maintains control of some advertising and TV production under its former name, Viacom extends its business to over 160 companies and is believed to have over 600 million subscribers across the globe. Viacom has also seen themselves in legal battles with Google and YouTube. Arguing that uploaded material from their programming has gained revenue for YouTube and Google, Viacom filed a claim for $1 billion in damages against them, stating that the uploaded clips were a ‘copyright infringement’ and have been viewed over a billion times. Courts ruled in Google’s favor, and Viacom had stated they planned to appeal the decision at that time.
In more recent years, Viacom began listing securities on NASDAQ, after formally trading on the New York Stock Exchange (NYSE) and formed a shaky agreement with DirecTV to provide programming to DirecTV’s clients, currently over 20 million subscribers. All this history hasn’t stopped Viacom from turning a decent profit on the stock market though. Following a quickly recovered drop in October 2011, Viacom has seen a return of 16.5% overall for the past 52 weeks.
However, the star of the show when it comes to return on equity is International Business Machines Corporation or IBM (NYSE: IBM). Based in the United States, IBM is a public corporation that specializes in technology and consulting, through manufacturing and selling hardware and software for computers. Reported to be the 2nd largest US company by number of employees, IBM employs over 430, 000 people and reaches a global client base. Perhaps the company with the most history of these five, IBM can be dated back to 1880 by its predecessor company and first became the International Business Machines Corporation in 1914.
Perhaps with such a long history, it is easy to see why IBM seems to be a popular brand, given that it has been awarded a selection of titles by various media sources, including the number one green company in the world by NewsWeek, and the 5th most admired company by Fortune 500 in 2012. Buffett seems to admire them too, and it might be hard not to considering their current return on equity, which is currently sitting at a massive 74.37%, far out-running its competitors. IBM has had a mediocre year with an overall return of -2.4% for the past 52 weeks.
Seeing decent returns in a still-recovering market and boasting high return on equity, it’s no surprise that Buffett and his managers chose to invest in these five companies. They look at a company’s competitive advantage, their ability to consistently make money, and financial efficiency. These characteristics translate into high ROE. It seems only natural Berkshire would consider these companies his investment portfolio.
mthiessen has no positions in the stocks mentioned above. The Motley Fool owns shares of International Business Machines. Motley Fool newsletter services recommend International Business Machines and The Coca-Cola 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!