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?
| 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.
