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49 Stocks For Buffett Fans

by: Richard Shaw September 07, 2008 | about stocks: FCX / GRMN / HAL / INFY / MSFT / ORCL / SAP / SAY / SLB / SYK / TEF / TSM / WFR    
Richard Shaw

Richard Shaw

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Business Week recently published an article “Stock Screen: Buy ‘Em Like Buffet“. It presented a list of 49 stocks they screened according to five criteria they report Warren Buffett uses, plus their own criteria to filter out overvalued stocks.  The five criteria were:

  • Free cash flow of $250 million or more
  • Net profit margin of 15% or more.
  • Return on equity greater than 15% for each of the past three years and the most recent quarter.
  • Shareholder value increasing at least as much as retained earnings over the past five years.
  • Liquidity — market capitalization of  $500 million or more.

We thought it might be interesting to go a step further and review that list of 49 stocks in terms of the S&P Star ratings for near-term market performance and current fair value.  S&P uses a 5 star rating system with 5 being the best.

The following 13 stocks from the list of 49 was rated 4 or 5 by S&P for each of near-term market performance and current fair value:

  • Garmin (GRMN)
  • Infosys Technologies (INFY)
  • Microsoft (MSFT)
  • Oracle (ORCL)
  • Taiwan Semiconductor (TSM)
  • MEMC Electronic Materials (WFR)
  • Halliburton (HAL)
  • SAP (SAP)
  • Satyam Computer Services (SAY)
  • Schlumberger (SLB)
  • Stryker (SYK)
  • Telefonica (TEF)
  • Freeport-McMoran (FCX).

Checking that list of 13 stocks against the Value Line rating system for timeliness of investment (1 being best), we found that 6 were highly rated as 1 or 2 for timeliness:

See our prior article on use of multiple analysis services for stock screening.

Any of the stocks in the list of 49, 13 or 6 could be a good place for do-it-yourself investors to begin their own research into potential opportunities.

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This article has 10 comments:

  •  
    Sep 07 11:50 AM
    where is FCX going from here? wow what a punishment for those who bought it at its high. I am looking at it every single day and ,since I don t own it, have been tempted to buy it. At which point can we start to buy it?
    Is their dividend safe? Are the price of copper and gold going much lower
    near term?How about long term? What the history of their dividend?
    Reply
  •  
    Sep 07 12:19 PM
    good questions to ask before you decide to buy. computer screened lists are just the beginning of research -- basically a way to narrow the field of needed manual research
    Reply
  •  
    Sep 07 12:31 PM
    The short answer is that you missed the opportunity at 10:00 am on Friday, to buy under $69. With Ike projected to enter the GOM, FRE/FNM bailout projected to cost the government trillions, inflation looming, a rate cut in response to more banking troubles, even more inflation looming, and hedge fund sell-offs done, we're resuming the commodity bull market on Monday.
    Reply
  •  
    Sep 07 12:35 PM
    As for SLB, we had a 2m barrel of oil, short-side surprise on Friday, and now another LOOP threatening hurricane entering the GOM this week. I know Bush gave the okay Wednesday to use the Strategic Oil reserves, but these delivery disruptions at some point, overwhelm our ability to subsidize.
    Reply
  •  
    Sep 07 12:45 PM
    This final 13 is most un-Buffettlike. Let's begin with the obvious fact that Buffett doesn't own them.

    A core tenet of Buffett investing is "buying what one understands". He has scrupulously avoided tech stocks as being "too hard".

    He doesn't like mining because at the end, the commodidty mined is gone and shareholders are left with "the hole".

    Buffett likes stocks with a competitive moat, preferably one with "alligators in it".

    Finally, businesses should have capable, shareholder friendly boards and management. Their interests should be squarely aligned with those of shareholders.

    There are a number of fine companies on your list. Some of which I have owned, I can't see any being strong Buffett candidates.
    Reply
  •  
    Sep 07 12:52 PM
    Jeff -- note that it was Business Week magazine that selected the list of 49 stocks as Buffet-like. We just filtered the list further in terms of S&P and ValueLine opinions as to general appeal. Certainly, Buffet uses criteria and judgement in his selections that a simple 5 attribute screen cannot capture. Our intent was merely to help those who read the Business Week article by letting them know more about the stocks in the list, but not to judge the realism of Business Week's construction of the list.
    Reply
  •  
    Sep 07 07:47 PM
    I am a prime example of what can happen if you are away from your computer for 1 weeks time. Out hiking with all of God's beautiful creatures and my shares of FCX had a hurrican run right through them and I am trying to muck out the aftermath. There were others that shared in this pummeling as well. I welcome, even embrace a bull run even if it's a minor bear retracement. Give me half of this weeks loss back and I will be completely happy. Use my experience as a lesson. To keep Buffet's track record in tact.. it appears to be a prudent contrarian, and totally buy into weakness. I would call this incredible weakness in many sectors. I will do this to hedge what losses I have incurred. There is my Buffet plan. Now to act on it.
    Reply
  •  
    Sep 15 02:21 PM
    I'm always amused by these lists of "Buffett-worthy&q... stocks. Anyone who thinks Infosys Technologies, Taiwan Semiconductor, or MEMC Electronic Materials would pass Buffett's criteria doesn't know the first thing about him. Neither Buffett, nor anyone else, can with any degree of confidence forecast what product these companies will be selling 10 or 20 years from now, let alone margin levels or market size. Buffett only buys companies which have been in the same business, selling the same products for 30 years or more, and are likely to continue doing so for another 50 years.
    Reply
  •  
    Sep 15 05:30 PM
    Owen,

    I certainly agree with your criticism of the list of 49 stocks generated by Business Week. My only task was to reduce that list down to those stocks (Buffet-like or not) down to those that are also currently recommended by S&P and ValueLine.

    The article title chosen by Seeking Alpha may suggest that we believe Buffet would want these companies, but that is not the case.

    Thanks.
    Reply
  •  
    Sep 16 11:15 AM
    Thank you, Richard. My comments were not intended as criticism of your article, but of the Business Week article and similar ones. Like you, I also follow the S&P reports, and was surprised to see in their September 3rd edition of The Outlook newsletter an article called 'Acing the Buffett Test'. In recent years, the term 'Buffett' has become a synonym for value investing, despite the fact that the legendary investor has deviated quite a bit from the teachings of Ben Graham and David Dodd.
    Reply
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