Which One of Berkshire (BRK.B)’s New Additions Should You Buy? Verisign, Inc. (VRSN), Archer Daniels Midland Company (ADM)

Page 1 of 2

In the middle of February, with much fanfare, the newest additions to Berkshire’s portfolio were announced. These stocks were immediately bid up after hours, and many investors and fund managers sought to emulate Berkshire’s actions in order to make a quick profit.

Buying into any of these stocks then would have been silly. There was so much fuss around the stocks that they jumped quick, and were bound to be sold off soon after. In addition, when everyone buys into one stock because it is cheap, then it no longer remains so.

Now the dust has settled. Where would you invest if you wanted to invest like Berkshire Hathaway Inc. (NYSE:BRK.B) , but can only invest in one holding?

Berkshire Hathaway Inc.In the last 6 months, Berkshire Hathaway Inc. (NYSE:BRK.B) has added these four new holdings to its portfolio.

Company Date Purchased Performance Since Reported Purchase
Deere & Company (NYSE:DE) 30/09/2012 +$6.5 (8%)
Precision Castparts (NYSE:PCP 30/09/2012 +$22.6 (14%)
Verisign, Inc. (NASDAQ:VRSN) 31/12/2012 +$6 (17%)
Archer Daniels Midland Company (NYSE:ADM) 31/12/2012 +$5 (18%)

Unfortunately, since their purchase all of these stocks have gone up, not really leaving much room for investors who were late to the party.

With prices up between 8%-18% since being purchased by Buffett, are there any opportunities left in these stocks or are they all now too expensive?

To find out, I am going to look at each stock for GARP (Growth At A Reasonable Price), and use the PEG ratio to discover if there is any potential left in these companies.

Rather than using the normal P/E ratios, I am going to use the forward P/E adjusted to remove cash from the balance sheet. In addition, rather than using the projected five year EPS growth rate, I am only going to use the predicted growth rate for next year, as I believe the further out that you try and predict growth, the more unreliable your numbers can become.

Deere & Company (NYSE:DE)

Share Price Cash Per Share EPS P/E Less Cash Forward P/E less cash Projected EPS growth rate PEG ratio
DE $88.00 $9.40 8 9.83 8.54 15 0.6

As I write, Deere is trading at $88 a share. After deducting cash, this becomes $78.6 based on current EPS that gives it a P/E ratio less cash of 9.8.

EPS is projected to grow 15% to $9.2 per share next year, and this gives a forward P/E ratio less cash of 8.5. Using this forward P/E ratio, divided by the projected EPS growth rate, we get a PEG ratio of 0.6, which is much less than the 1 required to signal that the stock is cheap for the growth it is expected to produce.

Despite the rise in the share price since Buffett bought in, Deere is still an attractive value proposition. The stock is trading at a forward P/E multiple less cash of 8.5 times compared to the sector average of 11. Deere is also trading on a PEG ratio of 0.6, and appears to offer growth at a reasonable price.

Precision Castparts (NYSE:PCP)

Share Price Cash Per Share EPS P/E Less Cash Forward P/E less cash Projected EPS growth rate PEG ratio
$187.00 $3.30 9.25 19.86 16.48 20.5 0.97

Next on the list is Precision. Unlike Deere, the company does not have much cash to make a difference to calculations. The company is currently trading on a forward P/E ratio of 16.5 less cash, and EPS is expected to grow 20.5% this year.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!