WARREN BUFFETT Quote : Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
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Monday, May 25, 2009

3 Stocks on Buffett's Wish List?

Does the Oracle of Omaha want these stocks?

"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread."
-- Warren Buffett, Oct. 16, 2008
It was a tough year for the world's richest man -- according to data from Forbes, Warren Buffett's net worth declined in value by a staggering $25 billion in 2008.

So let's not be too hard on ourselves if we, too, owned a few stocks that lost substantial portions of their value last year. Instead, let's pay close attention to what masters like Buffett are doing on the heels of such a dismal market year.

Let's cut to the chase
Buffett has been using the $44 billion cash hoard he had at the end of 2007 to buy stocks ... in the midst of an economic crisis.

Sure, Buffett may be insane, but as the world's richest man, his record speaks for itself. So when he wrote in that October New York Times editorial that he's buying now because it is likely that "the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up," Fools would do well to take heed.

These opportunities
What opportunities might The Oracle see today? According to Berkshire Hathaway's most recent 10-K filing, he's interested in buying companies at a fair price that have:

  1. At least $75 million of pre-tax earnings.
  2. Consistent earnings power.
  3. Good returns on equity with limited or no debt.
  4. Management in place.
  5. Simple, non-techno-mumbo-jumbo business.
These criteria are designed to ensure that the stocks on Buffett's watch list are large, well run, understandable, and posses durable moats -- sustainable competitive advantages that allow a company to maintain high levels of profitability and growth over long periods of time. Those are the rare companies that you want to buy when they're cheap, then hold for a long time as they continue to grow and prosper.

To try to identify the stocks that may be populating Buffett's wish list, I built a screen based on these traits using Capital IQ, an institutional software database. My research turned up 71 stocks. Confirming that we're on the right track, several of the companies that popped up -- Wal-Mart (NYSE: WMT) and Johnson & Johnson (NYSE: JNJ) are two standouts -- are already owned by Berkshire Hathaway.

Here are three more candidates:

Company7-Year Annual Earnings GrowthReturn on EquityCEO TenureIndustryAnalyst Coverage

Medtronic (NYSE: MDT)



2 Years

Healthcare Equipment


Petrobras (NYSE: PBR)



4 Years

Integrated Oil & Gas


Southern Copper (NYSE: PCU)



5 Years

Metals & Mining


Data from Capital IQ, a division of Standard & Poor's.

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