Are you an investor looking for the Holy Grail? Today is your lucky day. The guru of all gurus, Warren Buffett, just divulged the single most important secret for buying stock: Don’t pay more than 10% above book value for any stock.
Millions follow Buffett looking for clues as to his investment strategy. They come from miles around to hear him speak at the Berkshire Hathaway (NYSE:BRK.A, BRK.B) annual meeting. They hang on his every word perusing SEC filings for any insights on what it is that Buffett is buying.
Monday morning’s announcement that Berkshire Hathaway would buy back its stock is the last piece of information you will ever need to see from Buffett. In the statement is this quote: “no higher than a 10% premium over the then-current book value of the shares.”
And there it is in all its simplicity. The one simple thing investors need to do for investment success is to buy stock at a price no greater than 10% above book value. Follow that simple plan, and you too can be on your way to Buffett-like investing success. Forget about all of the daily worries and gyrations of the stock market. Stay disciplined with your buying, and over time you will make money. It is what Buffett has been doing since he started buying stock and continues to this day with his company’s own repurchase of shares.
With that in mind, here are 10 stocks trading for less than 10% above book value:
It is no secret that Buffett likes insurance businesses. Indeed, they are wonderful companies to own from an investing standpoint. Take in more premiums than you pay out to policyholders, and you win. The best part is you get to reinvest those premiums in other investments. Be smart and disciplined like Buffett and take a look at Hartford (NYSE:HIG). The large property and casualty stock trades for 0.34 times book value — way below the 10% threshold. Hartford also pays a dividend of 2.5%. Shares are down nearly 50% since the spring, yet operating performance is strong. The company has beaten Wall Street estimates in three of the past four quarters, missing last quarter — but by only a penny per share.
KKR Financial (NYSE:KFN) is in the business of making corporate loans to private equity borrowers. Formed in 2004, the company was severely hurt by the near-collapse of the financial markets in 2008. Shares bottomed in 2009 near $1 per share but have since recovered nicely. The company has had no trouble raising capital for its primary business, announcing recently that it had raised $1 billion to provide mezzanine financing to fund buyouts. The recent selloff in shares increased KKR’s dividend yield to more than 9%. Shares trade for 0.76 times book value.