I have been writing a lot about Warren Buffett. That said, he recently gave us all plenty of material to talk about and, after all, he is the greatest investor in modern history. His recently released letter to Berkshire Hathaway‘s shareholders tell us a lot about his investment style and what he is expecting for the future. Besides, the letter is a fast and great way to learn about his investment achievements.The letter reads: “Over the last 48 years (that is, since present management took over), book value has grown from $19 to $114,214, a rate of 19.7% compounded annually.” That is what I would call great proven performance!
Berkshire’s “Big Four” public investments are: American Express Company (NYSE:AXP), International Business Machines Corp. (NYSE:IBM), The Coca-Cola Company (NYSE:KO) and Wells Fargo & Co. (NYSE:WFC). As he admitted in his letter, Berkshire’s ownership interests in all four companies are likely to increase in the future. He not only does not plan to sell any shares, but also he will always consider buying more if Mr. Market offers a good enough entry price. As a matter of fact, Berkshire purchased additional shares of Wells Fargo & Co. (NYSE:WFC) increasing its stake to 8.7% from 7.6% (that the company had accumulated at the end of 2011). It also bought additional shares of International Business Machines Corp. (NYSE:IBM) Increasing its stake from 5.5% to 6%. At Coca-Cola and American Express Company (NYSE:AXP) share repurchases made Berkshire’s stake grow to 8.8% and 13.7% respectively. Let’s do a recap on each of those “Big Four” and see if they could be good candidates for your own personal portfolio at current market prices.
American Express Company (NYSE:AXP)
The company has a wonderful business model that offers low risk growth all across emerging markets and a sustainable cash flow stream in the US. American Express Company (NYSE:AXP) grows revenue at a very steady 5% year-over-year rate offering an also very stable14% net income margin. Selling at a 2013 13.5 P/E, the company seems cheap given the amazing quality of its clients and the sustainability of the cash flows the company offers to shareholders. American Express Company (NYSE:AXP) pays a small 1.24% cash dividend yield, but it is growing it fast at a 11% year-over-year rate.
International Business Machines Corp. (NYSE:IBM)
International Business Machines Corp. (NYSE:IBM) is the latest addition to Buffett’s “Big Four” list. When I saw on the news that Berkshire had made a big investment in International Business Machines Corp. (NYSE:IBM), I started my research on the company. International Business Machines Corp. (NYSE:IBM) built amazing corporate relationships through offering the highest service quality when providing Information Technology solutions. Let’s put it like this: If you are the CIO of any big company and you hire International Business Machines Corp. (NYSE:IBM) you know you will not be fired. International Business Machines Corp. (NYSE:IBM) trades at a 2013 12.5 P/E and is growing its 1.6% dividend at a 13% year-over-year rate.
The Coca-Cola Company (NYSE:KO)
The Sage of Omaha’s accumulated gains in the company amount to $13.2 billion. Having disbursed a total of $1.3 billion, Coca-Cola gave him a 1,015% return. And Coca-Cola is still a buy if you hold a conservative portfolio. The company owns the strongest global distribution network and is growing fast in emerging markets while it is not losing sales in developed markets (the company has a great portfolio of beverage products). The company has a 28% EBITDA margin and sells for a 2013 18.3 P/E. Besides, it pays a 2.86% cash dividend yield that is growing at a 8.5% year-over-year rate. If you want sustainable cash flows, buy Coca-Cola.
Wells Fargo & Co. (NYSE:WFC)
This bank is the best retail bank in America. In the middle of a financial crisis is when you should asses the performance of bank managers. Wells Fargo & Co. (NYSE:WFC) not only resisted the housing crisis better than the rest of its peers, it is also coming out stronger than ever from that crisis. Wells Fargo & Co. (NYSE:WFC) sells for a 2013 P/E of 10 and a book value of 1.3. Paying a 2.74% cash dividend yield, the bank is a clear buy when the American economy is recovering faster than expected.
Bottom line
As we can see from the short analysis above, Buffett’s portfolio only has high quality companies paying growing cash dividends and with huge competitive advantages built around their businesses. Competitive advantages that range from offering high quality services (IBM) to global distribution networks (Coca-Cola), or just best in class management and culture (Wells Fargo & Co. (NYSE:WFC)) protect the businesses where Buffett invests. Having the wisdom to see when a company has a great competitive advantage is Berkshire’s own business motto. My recommendation is simple. If you have some money to invest, it might be best to follow the best. In this case, follow Buffett.
The article Should You invest in Warren Buffett’s Top Stocks? originally appeared on Fool.com and is written by Federico Zaldua.
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