Invest Like Warren Buffett With These 3 Stocks

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By any measurement, Warren Buffett is one of the biggest rock star investors ever. His Berkshire Hathaway (BRK.B, BRK.A) has been making investors happy for nearly 50 years, and Buffett himself is the second-richest man in the U.S.

warren buffett stocks

The “Oracle of Omaha” didn’t just luck into his legendary success, though — it was the product of a disciplined focus on buying stocks to hold practically forever.

Buffett has long been enamored with blue-chip stocks — specifically, when solid companies are trading at less than their fair value. Buffett’s current portfolio (totaling nearly $108 billion) includes quality mega-cap names like The Coca-Cola Co (KO), Wells Fargo & Co (WFC) and International Business Machines Corp. (IBM). In fact, just four blue chips — KO, WFC, IBM and American Express Company (AXP) — account for 63% of Berkshire Hathaway’s holdings.

However, where investors might be able to learn more from Warren Buffett is through some of Berkshire’s lower-profile stocks — viewed through the lens of the Oracle’s sage adages. By examining some of these holdings, the average investor can learn to identify stocks that can keep delivering over a long investment horizon.

So if you’re looking to invest like Buffett, here are three stocks that line up with some of the best “Buffetisms”:

Investing Like Warren Buffett: Chicago Bridge & Iron Company N.V. (CBI)

Investing Like Warren Buffett: Chicago Bridge & Iron Company N.V. (CBI)Buffetism: “Be fearful when others are greedy; be greedy when others are fearful.”
YTD Performance:
-35%
Berkshire Stake: $580,963,262 (0.6% of portfolio).

Chicago Bridge & Iron Company N.V. (CBI) shares took a significant hit on Monday, closing down 5% after Goldman Sachs downgraded the stock from “neutral” to “sell.” That’s just the latest mugging for CBI stock — shares have fallen 35% year-to-date.

Although analysts have been down on the 125-year-old energy infrastructure company this year, CBI beat analysts’ estimates when it reported third-quarter earnings of $1.51 per share. (Revenues of $3.38 billion missed the consensus, however).

Accounting and cash flow-related concerns in the wake of Chicago Bridge & Iron’s $3 billion acquisition of the Shaw Group have weighed down CBI shares this year. That said, the Shaw deal positions CBI well with government and energy companies. CBI has a current backlog of nearly $31 billion and received four additional contracts in the month of November alone.

While many stock pickers are worried about CBI’s slump this year, don’t bet that Warren Buffett will give up a stock that looks oversold right now. CBI is trading at less than 10 times forward earnings and has a price/earnings-to-growth ratio of 0.62, suggesting that CBI is cheap now.

Investing Like Warren Buffett: USG Corporation (USG)

Investing Like Warren Buffett: USG Corporation (USG)Buffetism: “Our approach is very much profiting from lack of change rather than from change.”
YTD Performance: +4%
Berkshire Stake: $1,147,439,311 (1% of portfolio).

Warren Buffett celebrates two seemingly contradictory aspects of 110-year-old drywall giant USG Corporation (USG): It’s boring, but it’s also poised to perform.

If you’re confident in the resurgent housing market, USG stock is worth considering. North America’s largest plasterboard manufacturer continues to build upon three strategic priorities: strengthening the core of North American manufacturing and distribution, innovation, and diversification into emerging markets and related products.

That focus led to USG’s agreement with Australia’s Boral Ltd. last year to create a 50/50 joint venture that will extend their market within Asia, Australia and the Middle East.

Buffett’s history with USG stock has not always been wine and roses — when the housing market stumbled in 2000 and 2008, for instance. But if construction growth ramps up next year, that would pay off nicely.

USG has a forward P/E of around 15, which basically is in line with the sector, but its tiny PEG ratio of 0.45 suggests the stock could be undervalued when you consider its growth prospects.

Investing Like Warren Buffett: DaVita HealthCare Partners Inc (DVA)

Investing Like Warren Buffett: DaVita HealthCare Partners Inc (DVA)Buffetism: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
YTD Performance: +18%
BRK Stake: $2,869,664,064 (2.6% of portfolio).

At first glance, it seems surprising that the Oracle of Omaha would hop on the healthcare bandwagon. But peek below the surface and you’ll see that Warren Buffett’s DaVita HealthCare Partners Inc (DVA) play is another flavor of his basic value investing creed. DVA doesn’t live on the bleeding edge of biotech — it is one of the largest providers of kidney dialysis services in the U.S.

And with an aging population, demand for such services is projected to grow significantly over the next decade.

With more than 2,150 dialysis centers in the U.S. and 87 international partnerships in China, India, Germany and the Middle East, DVA is an attractive prospect for value investors. DVA also is expanding into the hospital business as part of a partnership with Colorado-based Centura Health.

Earlier this month, DVA reported earnings of 90 cents per share on $3.25 billion in revenue — meeting on the profit end and beating on sales. share for its most recent quarter on $3.25 billion in revenue. Although DVA’s forward P/E of about 20 and its PEG ratio of 2.5 are higher than I’d like, they’re still relative values when you consider the larger drivers pushing DaVita’s business ahead.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/11/warren-buffett-cbi-dva-usg-stock/.

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