Wells Fargo & Co (WFC), The Procter & Gamble Company (PG), Wal-Mart Stores, Inc. (WMT) – Invest Like Warren Buffett: Three Picks From Berkshire’s Portfolio

A discount retailer

Wal-Mart Stores, Inc. (NYSE:WMT) comprises 4.3% of Berkshire Hathaway‘s portfolio.

Wal-Mart Stores, Inc. (NYSE:WMT) has a sustainable competitive advantage in that it has economies of scale and superior supply-chain management technology. The added efficiency allows Wal-Mart Stores, Inc. (NYSE:WMT) to be the low-cost provider in most categories and capture market share from more expensive competitors. With those advantages, Wal-Mart now dominates the US grocery sector, with a 25% share in 2012. It also commands a 13% market share of US retail overall.

The discount retailer’s earnings are stable and predictable because Wal-Mart mainly sells essentials such as groceries and disposable products, whose demand is unlikely to change if macro conditions change. As an example, Wal-Mart Stores, Inc. (NYSE:WMT) was one of only two Dow Jones companies to see its share price increase in 2008.

The Bentonville, Ark. giant is also holding its own against web giant Amazon. In response to Amazon, Wal-Mart Stores, Inc. (NYSE:WMT) has invested deeply in Wal-Mart.com, which has seen online sales grow nearly 30% in the first quarter of the year and is on schedule to do almost $10 billion in revenue this year. Wal-Mart stores should also see higher growth in the future as Amazon faces sales taxes for the first time in many states.

Wal-Mart Stores, Inc. (NYSE:WMT) shares trade at a reasonable 13 times next year’s earnings, yield roughly 2.4%, and have an estimated 5-year annual EPS growth of 9.3%.

Conclusion

Investing in stable, predictable companies with deep moats and sustainable competitive advantages is a great way to get solid returns. The strategy may not beat the market every year, but will reward shareholders over the long haul. Buying Wells Fargo, Procter & Gamble, and Wal-Mart fit under the Oracle of Omaha’s criteria and will reward shareholders over time.

The article Invest Like Warren Buffett: 3 Picks From Berkshire’s Portfolio originally appeared on Fool.com and is written by Jason Bond.

Jason Bond has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Wells Fargo. The Motley Fool owns shares of Wells Fargo. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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