Value Investing: 5 Most Profitable Stocks in the Warren Buffett Portfolio

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We found 5 profitable stocks among Warren Buffett’s holdings – are they right for value investors?

High profile management changes are in the news today. Apple Inc. (NASDAQ:AAPL) is rallying on the back of its new director of retail, Angela Ahrendts, the former CEO of BURBERRY GROUP PLC (OTCMKTS:BURBY). This comes amid swirling speculation about the future of Warren Buffett‘s Berkshire Hathaway Inc. (NYSE:BRK.B).

Management turnover has hindered the company’s expansion and investors are starting to grow wary about a finding successor for their 83-year-old CEO, the eminent Warren Buffett.

For now, however, Buffett continues in his role as the proverbial king of value investing, making leadership changes and publicly criticizing the “extreme idiocy” of Washington on TV.

Warren Buffett portrait

And, as todays huge price changes in both Apple and Burberry illustrate, leadership can have a huge impact on a stock’s share price. Apple has just nudged over the $500 mark (as of 2pm EST), whereas Burberry is trading down around 6%.

It can be hard for value investors to make money if a stock doesn’t have much of an up-swing. That’s why value investors usually buy during periods of economic uncertainty, as Buffett did during the financial crisis. Those investments netted him over $10 billion so far, as The Wall Street Journal reported this weekend.

Investing ideas: the Warren Buffett portfolio

Taking a page out of Warren Buffett’s playbook, we decided to screen the 40 biggest publicly traded holdings that are listed in Berkshire Hathaway’s portfolio for profitability. Are any stocks surpassing even Buffett’s astute expectations?

To do that we looked at gross, operating, and pre-tax margins over the trailing twelve months (TTM), which together give a picture of how efficiently a company has been building its profits over the course of the last year. Companies beating their industry average may be poised for future growth.

And as a value investor, Buffett considers other factors besides leadership and margins, such a as low price-to-equity ratio (P/E). So for comparison, we included the P/E ratio for the five stocks left on our list.

Click on the interactive chart below to see analyst ratings over time. 

Do you follow the investing strategies of Warren Buffett? Use the list below as a starting point for your own analysis.

1. Mastercard Inc (NYSE:MA) (MA, Earnings, Analysts, Financials): Provides transaction processing and related services to customers principally in support of their credit, deposit access, electronic cash and automated teller machine payment card programs, and travelers’ cheque programs. Market cap at $83.38B, most recent closing price at $689.10.

P/E Ratio: 28.49.

TTM gross margin at 58.11% vs. industry average at 50.62%.

TTM operating margin at 55.% vs. industry average at 30.76%.

TTM pretax margin at 54.96% vs. industry average at 30.66%.
2. Moody’s Corporation (NYSE:MCO) (MCO, Earnings, Analysts, Financials): Provides credit ratings and related research, data, and analytical tools; risk management software; and quantitative credit risk measures, credit portfolio management solutions, and training services in the United States, Europe, the Middle East, and Africa. Market cap at $15.92B, most recent closing price at $71.62.

P/E Ratio: 21.44.

TTM gross margin at 71.79% vs. industry average at 55.6%.

TTM operating margin at 39.99% vs. industry average at 34.16%.

TTM pretax margin at 37.7% vs. industry average at 19.55%.

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