At Insider Monkey, we’re big believers of following the smart money because research has shown that hedge funds’ top consensus stock picks can outperform the market by a significant margin. Our Billionaire Hedge Fund Index—built in collaboration with MarketWatch—returned 24.3% last year, beating the S&P 500 ETF by 8 percentage points (see how to use this strategy yourself). We track the moves of close to 450 hedgies, and Warren Buffett and Berkshire Hathaway stand out for obvious reasons.
When it comes to high-level investors that have the full attention of Mr. Market, Buffett takes the cake, so let’s take a look at some key moves reported in his latest 13F filing with the SEC.
DaVita, GM bull
In early February, we analyzed five of Buffett’s holdings that had seen insider buying activity over the previous 90 days. This is a great way to parse down any money manager’s positions, and it looks like our analysis was spot on. DaVita HealthCare Partners Inc (NYSE:DVA) and General Motors Company (NYSE:GM) made that list, and we now know that Buffett was increasing his stake in both companies last quarter.
Since the Oracle first bought into DaVita back in Q4 2011, he has now boosted his position in four consecutive quarters, and shares of the dialysis services provider have already popped more than 6% since the start of the year (through mid-February). This company, along with the rest of the healthcare space, has a generally bullish outlook, and the sell-side expects mid-double-digit earnings growth through at least 2017.
General Motors, meanwhile, saw Buffett increase his stake by two-thirds in the fourth quarter, and the automaker was a splendid investment in 2012, returning over 40%. A revamp of its product lineup and an ongoing management restructuring effort are long-term positives, and like most of Buffett’s investments, GM’s stock is also cheap. Shares currently trade below 8 times forward earnings and sport a sub-1.0 PEG. A book value near parity also indicates that there’s obvious value here.
Wells Fargo, new no. 1
In addition to DaVita and GM, Buffett and Berkshire were also upping their stake in Wells Fargo & Company (NYSE:WFC), albeit by only 4% or so. Still, the move makes the bank Buffett’s new No. 1 holding, inching past previous top dog The Coca-Cola Company (NYSE:KO).
Wells Fargo has been a solid investment over the past year, returning more than 16%, and over the longer term, the company has benefited from its Buffett-connection by playing a key role in the financing of multiple Berkshire acquisitions. Shares of WFC aren’t particularly expensive at 9 times forward earnings and 1.2 times book, and a dividend yield of 2.8% outpaces JPMorgan Chase & Co (NYSE:JPM) and PNC Financial Services (NYSE:PNC), giving it the highest payout in the S&P 500’s money center banking industry.
In short, both income and value-seeking investors can’t really go wrong with Wells Fargo, and continued support from the smartest of the smart money makes this stock a slam dunk.
What other moves was Buffett making in Q4?
A couple of stocks Buffett and Berkshire were buying in the fourth quarter are Archer Daniels Midland Company (NYSE:ADM) and Verisign, Inc. (NASDAQ:VRSN), though both positions comprise less than 0.5% of their 13F portfolio.
Archer Daniels is a mammoth player in the commodity-processing marketplace, and Buffett did tell Bloomberg that it was the “kind of company we look at” back in 2011. Trading at a 13% discount to its three-year highs, ADM is still cheap by most metrics, and a dividend yield above 2% offers solid income as well.
Verisign, by comparison, does not offer a dividend payout, though it has a bit more growth potential than ADM. The company is a solid Internet infrastructure play for Buffett and his investment team, and S&P holds a positive outlook on this space for the time being. Verisign’s shares aren’t especially inexpensive at the moment, but the Street does expect bottom line growth of 12%-13% over the next half-decade.
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