Warren Buffett’s holding company Berkshire Hathaway filed its 13F for the first quarter of 2013 with the SEC in May. While the information in this filing may be a bit out of date, we’ve actually found that 13Fs can be used to develop profitable investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and Buffett is generally a longer term investor in any case. We also like to screen filings from top managers according to a number of criteria, including stocks with low PEG ratios; the PEG ratio combines the price-to-earnings multiple with analyst expectations for future growth rates, and while analyst forecasts often aren’t accurate it at least provides a way to estimate a stock’s upside potential. Read on for our quick take on Berkshire’s five largest holdings at the end of March in stocks with five-year PEG ratios of 0.9 or lower (or see the full list of stocks Buffett reported owning).
The holding company increased its stake in DirecTV (NYSE:DTV) by 10% during the first quarter of 2013, to a total of over 37 million shares. With a trailing earnings multiple of 13 and with the sell-side predicting high earnings growth at the satellite TV company, the PEG ratio comes in well below 1. However, we’d note that revenue grew only 8% last quarter compared to the first quarter of 2012 with earnings actually declining. DirecTV (NYSE:DTV) was one of the top picks in Southeastern Asset Management’s portfolio; that mutual fund is managed by billionaire Mason Hawkins (research more stocks Southeastern owns).
Oil and gas refining and marketing company Phillips 66 (NYSE:PSX) was another of Buffett’s high upside potential picks with the filing disclosing ownership of more than 27 million shares. Downstream oil and gas companies are generally seeing low earnings multiples in the current market environment, and the fairly recent ConocoPhillips (NYSE:COP) spinout is no exception with both trailing and forward P/Es of 8. With analysts expecting earnings per share to improve over the long term, we get a five-year PEG ratio of 0.7. Phillips 66 (NYSE:PSX) has risen about 80% in the last year.