Warren Buffett is the Chuck Norris of Investing
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is a myth that a money manager, known only as the “Oracle of Omaha," can beat the market by 20 percentage points per year, make onions cry, and speak braille. Okay, we’re going to be honest – Chuck Norris, known for his role in such epics as Walker Texas Ranger and Missing in Action, is the only man known to possess the last two skills. In the investing world, however, Warren Buffett enthusiasts know no difference. As the chairman of Berkshire Hathaway (NYSE: BRK-A), Buffett has been appropriately lauded for his role as the prodigal son of straightforward, commonsensical investing. He sticks to a few simple rules, which are discussed in greater detail here.
Now, to profit like him, time-strapped investors can take note of his holdings, which are reported by the SEC once a quarter. In comparison to his peers at some of the world’s biggest hedge funds (check out the Top 10), Buffett holds a relatively small number of stocks (35) and has relatively little portfolio turnover (3%) on a quarterly basis. Both of these facts make mimicking the Oracle easier than following most money managers, who are more likely to change their stock holdings before everyday investors can take full notice. Consequently, here are three stocks that Warren Buffett – and possibly Chuck Norris – are going nuts over. You’re welcome.
The Coca-Cola Company (NYSE: KO)
Comprising almost one-fifth of Buffett’s total holdings, Coca-Cola is a stock that needs no introduction, unless you’ve been living under a rock for the past 126 years – we’ll refrain from making any more Chuck Norris jokes here. But in case you have, Coca-Cola is currently the world’s largest nonalcoholic beverage producer, selling soft drinks to most of the known world – 200 countries to be exact – while tailoring its brands to fit the innumerable tastes of these distinct cultures. Though Americans are used to traditional Coke, Bulgarians can drink Coca-Cola Blāk, while the Japanese are enjoying their Coca-Cola Citra. These are just a few examples, but you get the point.
From an investing perspective, shares of KO have returned 11.5 percent since the start of 2012, while sustaining solid annual revenue (13.4%) and EPS (14.0%) growth rates in a post-recessionary environment typically devoid of such progress. In this year’s first quarter, Coca-Cola reported earnings of $0.89 a share, placing it on track to hit an EPS of $4.12 by Christmastime. If this year-end estimate holds, it would mark an 11.6 percent increase from the previous year. Now, assuming that shares of KO remain near their current valuation of 20.7X earnings, they should reach the mid-$80s by this time; the stock currently trades in the $77 range. A return of 7-8 percent in just a half-a-year? We’ll take it.
Wells Fargo & Co (NYSE: WFC)
Since its purchase of Wachovia in the onset of the 2008 recession, Wells Fargo is the newest member of the U.S.’s “Big Four” banks. While we’re still deciding if this is a title any company would actually want (see Occupy Wall Street protests), it seems as though investors have already made up their minds. Shares of WFC have returned 20.7 percent year-to-date, which easily outpaces the banking industry’s average and main rival JPMorgan Chase (NYSE: JPM).
From a valuation standpoint, however, Wells Fargo is still underappreciated, as it is currently trading at a P/E ratio (10.8X) below the industry norm (16.2X) and its own 5-year historical average (18.8X). In fact, WFC’s earnings had been valued at a 25 percent premium to those of the S&P 500 Index over the past half-decade. Presently, they appear much cheaper, trading at 26 percent discount. By year’s end, the Street is expecting WFC to clock in an EPS of $3.28 – a 16.4 percent jump from 2011. By 2013, earnings are estimated to hit $3.63 a share. Even if these estimates are off by 5 percent, fairly valued shares of WFC have a good chance at eclipsing $50 by next summer; they currently trade in the $33 range.
American Express Co (NYSE: AXP)
Comprising just over 11 percent of his portfolio, American Express is one of Warren Buffett’s most loved stocks, likely due to its unique combination of strong earnings growth and persistent undervaluation. Since the recession, AXP’s bottom line has grown at an average annual rate of 18.3 percent, as the credit card behemoth has quite the economic moat. See, Amex holds one distinct advantage over competitors like MasterCard (NYSE: MA) and Visa (NYSE: V); it does not have to rely on third parties to handle customers’ transactions.
While much can be said for the stock’s hearty return year-to-date, it appears that investors still have not taken full notice, as AXP trades at a P/E ratio (13.8X) below the industry average (16.3X), MA (27.1X), and V (28.9X). Going forward, analysts’ consensus is that American Express will finish 2012 with earnings of $4.34 a share, up from the $4.12 it reported last year. If these expectations hold, fairly valued shares of AXP look set to rise above $70; they currently trade around $58. WealthLift’s Sentiment Index also rates AXP as a strong buy, with 87.5 percent of users placing an “overperform” rating on the stock.
These are just three of Warren Buffett’s favorite stock picks, check out WealthLift INSIDER for updates on the Oracle’s holdings, as well as any relevant Chuck Norris news.
Fool blogger Jake Mann doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of JPMorgan Chase & Co., The Coca-Cola Company, MasterCard, 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 APR 2012 $21.00 puts on Wells Fargo & Company, short APR 2012 $29.00 calls on Wells Fargo & 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, Visa, 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.