We track 13F filings from hedge funds and other major investors, including Warren Buffett’s holding company Berkshire Hathaway, for a few different purposes. For one, we have found that the most popular small cap stocks among the filers we track- even with the inherent delay which comes from using 13F filings- earn an excess return of 18 percentage points per year and we continue to research other investment strategies. Of course, Buffett’s picks themselves- while it may not be wise to blindly imitate them- are of interest and we can further refine his portfolio by looking at the stocks in his filing which are in line with traditional value criteria. Here are our quick thoughts on Berkshire’s five largest holdings as of the end of December in stocks with both trailing and forward price-to-earnings multiples of 11 or lower (or see the full list of stocks it reported owning):
Buffett’s new top pick by market value is Wells Fargo & Co (NYSE:WFC) after adding shares in the fourth quarter of 2012. While Wells Fargo is a questionable value in terms of the book value of its assets (the stock’s P/B ratio is 1.3), it is able to generate enough earnings that its earnings multiples are about in line with many other large banks. The trailing P/E of 11 is certainly competitive with peers such as Citigroup Inc. (NYSE:C) and Bank of America Corp (NYSE:BAC), and earnings were up 24% last quarter compared to the fourth quarter of 2011. Billionaire Ken Fisher’s Fisher Asset Management also had a large position in Wells Fargo (check out Fisher’s stock picks).
Berkshire was also buying shares of DirecTV (NASDAQ:DTV), closing December with over 34 million shares in its portfolio. DirecTV reported a good fourth quarter, with revenue rising 8% and net income up 31% versus a year earlier. The market apparently expects this growth to screech to a halt since the trailing earnings multiple is only 11- which would be more in line with a stagnant company. Wall Street analyst expectations are for growth to continue at a decent rate, which results in a five-year PEG ratio of 0.7. Arrowstreet Capital increased its holdings of DirecTV by 15% last quarter.
Find three more cheap stock picks from Warren Buffett: