Warren Buffett’s High Upside Potential Picks Include GM

Berkshire Hathaway was a big buyer of General Motors Company (NYSE:GM) last quarter, with the 25 million shares in its portfolio at the end of December representing a 67% increase from three months earlier. GM was one of the most popular stocks among hedge funds during Q4 (find more of hedge funds’ favorite stocks). Some value investors believe that automakers are poised for strong numbers as (among other factors) U.S. consumers replace their historically aged auto fleet, and Wall Street analysts are also pushing the bull case as GM’s forward P/E is only 6. Expectations of continued growth from that point result in a low PEG ratio, as is the case at some other automakers and auto related companies.

The holding company was also buying National Oilwell Varco, Inc. (NYSE:NOV), a $30 billion market cap oil and gas drilling and production services company, during the fourth quarter of 2012. With drilling activity generally dependent on oil prices and therefore macro conditions, the stock’s beta is quite high at 2.2. Revenue and earnings grew at double-digit rates last quarter compared to the fourth quarter of 2011, but the market is pricing in low growth at a trailing P/E of 12. Billionaire T. Boone Pickens was also buying National Oilwell Varco according to his 13F (check out Pickens’ stock picks).

Wabco Holdings Inc. (NYSE:WBC) rounded out our list of Buffett’s high upside potential picks as the filing disclosed ownership of 4.1 million shares and analyst expectations result in a five-year PEG ratio of 0.8. The auto parts company also has a high beta (at 2.3) and we’d note that net income fell 15% in its most recent quarter compared to the same period in the previous year (revenue was down as well). With trailing and forward earnings multiples in the teens, we would avoid it. Lone Pine Capital, managed by billionaire Stephen Mandel, reported a position of 3.5 million shares (see more stocks Mandel liked).

Disclosure: I own no shares of any stocks mentioned in this article.