Warren Buffett and Jim Cramer Both Like These Stocks

BERKSHIRE HATHAWAYFormer hedge fund manager Jim Cramer is now a financial television host at CNBC who continues to invest through his charitable trust. We have compared his trust’s holdings to those that Berkshire Hathaway reported on its 13F filing for the second quarter of 2012 (find a full list of stocks in Warren Buffett’s portfolio) and picked out some stocks that Cramer’s trust owned that were also in Berkshire’s top 25 holdings:

Buffett has been a major holder of Wells Fargo & Company (NYSE:WFC) for some time, and Berkshire reported over 400 million shares of the company in its portfolio at the end of June. According to the holding company’s 13F, this represented a 4% increase in Berkshire’s stake and made Wells Fargo the second largest stock position that it owned. Cramer’s trust recently had a position of 2,600 shares in Wells Fargo, making it a new pick. Wells Fargo trades at a substantial premium to the book value of its equity. Cramer apparently also believes that Wells Fargo’s brand and more stable balance sheet justify its relatively high valuation, as his trust also owns shares of the bank. We don’t think that Wells Fargo, at a trailing earnings multiple of 11 with a 2.6% dividend yield, is a bad stock to buy; we just continue to think that, compared to peers in its industry, JPMorgan Chase and Citigroup are better buys than Wells Fargo due to even lower pricing compared to their book values and earnings. We would note that Cramer’s trust also owns 2,700 shares of JPMorgan Chase & Co (NYSE:JPM), and therefore has a larger position there than in Wells Fargo.

Kraft Foods Inc (NASDAQ:KFT) was another top holding in Berkshire Hathaway’s portfolio; it cut its stake but still owned 59 million shares at the end of June. Cramer’s trust owns 2,700 shares of the diversified consumer staples company which owns brands such as Oreo, Nabisco, and Oscar Mayer. Kraft has good potential as a defensive consumer stock with a beta of 0.3 and a 2.8% dividend yield, but we would note that it appears to be priced a bit high at a trailing price-to-earnings ratio of 21. The company’s earnings growth last quarter compared to the same period in 2011 came purely through margins as revenue actually declined. We think the 11% increase in EPS that sell-side analysts expect in 2013 compared to 2012 may be too optimistic, and even achieving this goal would yield a forward P/E of 15.

Another common stock pick between Warren Buffett and Jim Cramer was CVS Caremark Corporation (NYSE:CVS). We covered CVS Caremark in depth earlier this month. Berkshire cuts its position in the stock in the second quarter but still finished June with 5.3 million shares. Cramer’s trust owns 2,300 shares of CVS Caremark. CVS currently trades at 16 times trailing earnings, and stands to benefit from both growth in its industry (as an aging population generates greater demand for pharmacy services and many brand-name drugs are replaced by generics) and industry consolidation as Express Scripts and Medco Health Solutions, two pharmacy benefit managers, integrate their operations. CVS Caremark trades at a premium to rival Walgreens (NYSE:WAG), but both of these managers apparently like it better despite its pricing. We had also concluded in our discussion that CVS made for a good long term investment.

If investors want to copy some common positions from these two institutions, we would pick Wells Fargo above the other two companies- though we’d still suggest that JPMorgan makes for a better buy, and Cramer at least seems to think they are of comparable value at current prices. CVS is another good buy as it trades at a moderately cheap trailing earnings multiple with a number of potential growth drivers.