Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Who is Warren Buffett?, The Graham-Buffett Investing Strategy

Companies / Investing 2013 Jan 16, 2013 - 03:59 PM GMT

By: Submissions

Companies

J. Royden Ward writes: Warren Buffett is my hero. In my mind, he is the best investor ever. If you had invested in one share of his Berkshire Hathaway (BRK-A) 25 years ago when it sold for a mere $3,030 per share, your one share would now be worth $143,000 today. The increase works out to a compound annual growth rate of 16.7%. You would have doubled your investment every four and a half years!


Warren Buffett Stocks

How did Mr. Buffett achieve such remarkable returns? He invested in undervalued high-quality companies using a fundamental value approach. His largest holdings include: Coca-Cola, Wells Fargo, IBM, American Express, Proctor & Gamble, Wal-Mart and Johnson & Johnson. Warren Buffett has owned these leading companies for decades while ignoring the many ups and downs of the stock market.

Warren Buffett is someone I admire not only for his legendary investment skills, but also for his intelligence, wit, down-to-earth personality and generosity. Known as the “Oracle of Omaha,” his investing prowess has propelled him to become one of the wealthiest people on the planet.

Warren believes the U.S. economy will strengthen during the next several years, because the American free enterprise system is alive and well and has worked splendidly during our 200-year history with the exception of a few minor glitches. And there is no reason to believe that America will fall apart during the next century or two.

Warren Buffett Biography

Buffett graduated from the University of Nebraska at Lincoln with a B.S. degree in Business Administration. He then enrolled at Columbia Business School after learning that Benjamin Graham, author of one of his favorite books, The Intelligent Investor, taught there. He earned an M.S. in Economics from Columbia Business School in 1951 at the age of 20.

In 1954, Buffett convinced Benjamin Graham to hire him as a securities analyst in New York. When Mr. Graham retired two years later, Buffett started his own investment company. His initial investments in Berkshire Hathaway, a textile manufacturing company based in New Bedford, Massachusetts, and Government Employees Insurance Co. (GEICO), originally located in Washington D.C., became huge investment successes. They provided the foundation to generate large investment profits and cash flows. The profits and cash flows could then be invested in additional stocks. This simple formula snowballed into millions and then billions of capital under management.

The profit formula was simple, but Buffett’s investment strategy was more complex. He never strayed from what he learned from his mentor from many years ago, Benjamin Graham. Wait patiently for the stock price to decline to the desired level. Buy when the stock price is well below the value of the company. Hold forever.

Warren Buffett stated clearly: “The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.”

Value versus Growth

I want to comment briefly on another, related subject: Value versus Growth. I have always advised my readers to divide the stock portion of their portfolio into 50% value stocks and 50% growth stocks. Many investors, though, load up on growth stocks. They are exciting and fun, but value stocks will perform as well as growth stocks, will give you a smoother ride, and provide you with higher dividends. Just ask Warren Buffett.

The Intelligent Investor

Want to invest like super-investors Graham and Buffett? I strongly recommend reading Benjamin Graham’s book, The Intelligent Investor. In the book, Graham provides easy-to-use checklists to find stocks that are selling for less than they should be: stocks that will beat the market with minimal down-side risk. The Intelligent Investor is easy to read and easy to implement. Warren Buffett described the book as "by far the best book on investing ever written."

The Graham-Buffett Strategy

Here are eight guidelines to get you started in the right direction. You can read other guidelines and find out what Warren Buffett’s current holdings include at: www.buffettbuys.com.

For this Cabot Wealth Advisory, I combined Warren Buffett’s and Benjamin Graham’s criteria for choosing stocks. To find investment opportunities for you, I looked for stocks with:

1) Free cash flow more than $20 million – cash needs include dividends, operating expenses, capital improvements, and research.
2) Net profit margin more than 15% – a good indicator of growth sustainability.
3) Return on equity more than 15% – a barometer of future appreciation.
4) Discounted cash flow value higher than current price – Standard & Poor’s is a good source to find discounted cash flow estimates.
5) Market capitalization more than $1 billion – small companies not allowed.
6) Standard & Poor’s rating of B+ or better – indicates financial stability and steady growth of earnings and dividends.
7) Positive earnings growth during the past five years with no deficits – very important.
8) Dividends currently paid – always important and helps your return, too.

I screened my Benjamin Graham Common Stock Database and found two high-quality companies that fit the above criteria. Both companies are leaders in their sector, and both have excellent future prospects.

Aflac (AFL: 52.93) is the world’s largest supplemental cancer insurance provider, deriving 75% of its business from Japan. Most of Aflac’s policies are individually underwritten and marketed at worksites through independent agents, with premiums paid by the employee.

Aflac Japan’s insurance products are designed to help pay for costs that are not reimbursed under Japan’s national health insurance system, and include supplemental health and life insurance. Aflac Japan provides insurance to one out of every four Japanese households.

Aflac has expanded its product line and added new marketing venues in recent years. Non-cancer insurance policies now account for 70% of new sales. Aflac’s rapid growth in Japan is propelled by its success in selling through banks and post offices where sales reps are located.

Aflac’s focus on new products, such as hybrid whole life insurance products, and its successful promotions in Japan are performing well. Sales increased 15% and earnings per share (EPS) rose 40% during the 12 months ended 12/31/12. Insurance policy sales in Japan are growing more rapidly than expected.

Growth should continue at a rapid pace in 2013, too. Japan’s new prime minister has announced several worthwhile programs to bring Japan’s economy out of the doldrums, which will help Aflac’s sales. In addition, sales in the U.S. sales have improved noticeably.

AFL shares sell at 9.1 times 2012 EPS of 5.85, which is well below Aflac’s 10-year average P/E of 10.6. Lower risk in Aflac’s bond holdings and further successes in Japan will produce strong growth in future years. AFL shares are Low Risk and sell at a deep discount to Standard & Poor’s discounted cash flow value of 79.80. The 2.6% dividend yield adds significant value. I expect AFL to increase to my Minimum Sell Price target of 79.75 within one to two years.

BB&T Corp. (BBT: 30.26), founded in 1872 and based in Winston-Salem, North Carolina, BBT provides checking and savings, loans and other financial products and services in the Southeastern U.S. with a high concentration of customers in Virginia, North Carolina and Florida. BB&T has 1,800 branches and $178 billion in assets.

BB&T has taken advantage of attractive buying opportunities during the past four years. The company has acquired Haven Trust Bank, BankAtlantic and parts of Colonial Bank. Earlier, in 1995 and 1997, BB&T merged with Southern National Corp. and purchased United Carolina Bancshares.

Management expects to easily comply with new U.S. government rules and regulations, including Dodd-Frank and the Volcker Rule. Consumer protection regulations will increase some expenses, but not significantly.

Loans increased 8% and EPS soared 45% in 2012. BB&T is taking market share from other banks and is improving the quality of its investment holdings. Underperforming assets fell to the bank’s lowest level since 2008, and BB&T has stopped holding low-yielding mortgages.

I forecast loan growth of 5% and earnings per share growth of 10% in 2013. The acquisition of BankAtlantic, based in Florida, could send revenues and earnings higher than expected. With a current P/E (price to earnings) ratio of 11.4 and a dividend yield of 2.8%, BBT shares are undervalued. BBT is medium risk. BBT shares sell at a deep discount to Standard & Poor’s discounted cash flow value of 39.30. I expect BBT to increase to my Minimum Sell Price target of 38.75 within one year.

I will continue to follow Aflac, BB&T and other blue-chip, high-quality companies in my Cabot Benjamin Graham Value Letter. My March issue will include an eight-page feature on undervalued Graham-Buffett type stocks. I hope you won’t miss it!

Sincerely,

J. Royden Ward

Value Investment Specialist, Analyst and Editor of Cabot Benjamin Graham Value Letter

A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter. He is also a regular contributor to Cabot's free e-newsletter, Cabot Wealth Advisory, and blog, The Iconoclast Investor .

© 2013 Copyright J. Royden Ward - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in