Several weeks after the end of each quarter, hedge funds and other major investors such as Warren Buffett’s Berkshire Hathaway file 13Fs with the SEC, disclosing many of their long equity positions as of the end of that quarter; check out Berkshire’s most recent 13F on the SEC’s website. Our database tracks hundreds of 13F filings, with us using the included information to develop investing strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year).
We can also look at mangers’ favorite picks in a number of areas, including stocks satisfying the traditional value criteria of low earnings multiples. Here are Berkshire’s five largest positions in stocks which currently post both trailing and forward P/Es of 12 or lower; see Buffett’s stock picks over time:
Leading the list is the holding company’s largest position in terms of market value, Wells Fargo & Co (NYSE:WFC). Buffett was buying the bank between January and March, closing the quarter with about 460 million shares in his portfolio. While many other megabanks are currently valued at their book value or lower, Wells Fargo & Co (NYSE:WFC)’s P/B ratio is 1.4. While it’s tough to call the stock a good value in that sense, in earnings terms things look better with a trailing P/E of 12. In addition, Wells Fargo managed 22% earnings growth last quarter compared to the first quarter of 2012 (though revenue was essentially unchanged), and one underrated benefit of the company is that its close proximity to Buffett may give it a leg up in future Berkshire financing activities.
Buffett and his team disclosed ownership of over 50 million shares of U.S. Bancorp (NYSE:USB). The $65 billion market cap bank joins Wells Fargo as being fairly cheap in absolute terms, at a valuation of 12 times its trailing earnings, though recent financial performance has been fairly static here. Wall Street analysts aren’t expecting much of an improvement in US Bancorp’s earnings per share over the next several quarters either, judging from the fact that the forward P/E is only slightly lower at 11.
We’re not sure that it’s such a good buy compared to other financial stocks, such as Citigroup Inc. (NYSE:C), for example, which has better growth options internationally. Still, it’s difficult to ignore Buffett’s bullishness.
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