7 Stocks to Buy That Are ALMOST in Buffett Buying Range

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stocks to buy - 7 Stocks to Buy That Are ALMOST in Buffett Buying Range

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Warren Buffett’s annual shareholders’ letter came out Feb. 25. The Oracle of Omaha covered a lot of ground in his annual state of the union. Revisiting the subject of share repurchases, Buffett discussed the reasons why you don’t see Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) on his own list of stocks to buy.

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While he’s not against them, mind you, he believes that most CEOs pay very little attention to the price paid to buyback repurchase their company’s stock, an affliction that Berkshire Hathaway doesn’t suffer from. He’s authorized to buy back Berkshire stock by the boatload up to 120% of its book value per share, a price that’s substantially discounted from its true intrinsic value.

At the end of fiscal 2016, Berkshire Hathaway’s Class B stock stood at $109.17, which means Buffett would be willing to pay a maximum price of $131.03 for each share or 24% less than its Feb. 28 closing price of $171.42. Clearly, he wouldn’t be a buyer at the moment.

That got me thinking about the other companies in the S&P 500. Have any of them been able to meet Buffett’s stringent threshold for repurchasing shares?

Here are seven stocks to buy that almost meet Buffett’s criteria.

Stocks to Buy for Buffett: Leucadia National (LUK)

Stocks to Buy for Buffett: Leucadia National (LUK)Best known for owning U.S. investment bank Jefferies LLC, Leucadia National Corp. (NYSE:LUK) has gained a reputation over the years as a good value investment; in 2016, its share repurchase activity demonstrates just how good it can be.

In the year ended Dec. 31, 2016, Leucadia repurchased $95 million of its shares at an average price of $17.48. Its book value per share at the end of the year was $28.18, meaning the company paid 0.6 times its book value for its shares which now trade at 0.9 times book, a 50% increase in the market value of its shares.

Other investments include a 23% ownership stake in HRG Group Inc (NYSE:HRG), itself a holding company whose biggest investment is majority ownership of Spectrum Brands Holdings, Inc. (NYSE:SPB), a consumer brands’ business with names like Rayovac, George Foreman, Black Flag, Remington, etc.

Leucadia National is one holding company worth owning.

Stocks to Buy for Buffett: Hewlett Packard Enterprise (HPE)

Stocks to Buy for Buffett: Hewlett Packard Enterprise (HPE)Meg Whitman’s baby took it on the chin Feb. 24 losing almost 7% in the week’s final day of trading after announcing Q1 2017 earnings that were less than stellar.

Interestingly, while the future earnings of Hewlett Packard Enterprise Co (NYSE:HPE) are expected to be bumpy in the quarters to come, analysts were complimentary of its capital allocation strategy in fiscal 2016.

And so they should be.

In 2016, HPE repurchased 157.8 million shares of its stock at an average price of $16.86 per share for a total expenditure of $2.7 billion. Meanwhile, its book value per share at the end of October was $18.12; the company paid 0.9 times book to buy back its shares, which now trade for 1.2 times book despite its latest swoon.

While its future earnings aren’t entirely clear, it’s still a $39.5 billion market cap with plenty of cash on the books. That, along with a good share repurchase plan, has got to be worth something.

Stocks to Buy for Buffett: WestRock (WRK)

westrockIt has been 19 months since MeadWestvaco Corporation and Rock-Tenn Company merged to form WestRock Co (NYSE:WRK), one of the world’s largest paper and packaging companies with more than $14 billion in revenue and $1.2 billion in segment income from its two major businesses: corrugated packaging and consumer packaging.

Since trading as WestRock, WRK stock is up over 40% through Feb. 27.

During WestRock’s fiscal year, which ended Sept. 30, 2016, the company repurchased $335.3 million of its stock at an average price of $41.40 or 1.1 times its book value per share ($38.76) at the end of September. Today, those shares trade for 1.4 times book value, something Buffett would likely agree with.

In its first year as WRK, management cut $440 million from its expenses and expects to meet its three-year synergy and performance improvement target of $1 billion; half-way there, the future looks bright for WestRock shareholders.

While you wait for it to deliver on its goals, enjoy the 2.9% dividend yield and hopefully so more share repurchases at less than 1.2 times book value.

Stocks to Buy for Buffett: Corning (GLW)

Stocks to Buy for Buffett: Corning (GLW)One of the 102 stocks held by the SPDR S&P 500 Buyback ETF (NYSEARCA:SPYB) — invests in S&P 500 companies with highest buyback ratios — Corning Incorporated (NYSE:GLW) comes very close to Buffett’s criteria of 1.2 times book value but ultimately missed the mark in fiscal 2016.

Although its net income in fiscal 2016 dropped by 14.1% to $1.3 billion, its display technologies segment, which makes the glass screens for LCD TVs, had a good year in terms of revenue. Revenue increased by 4.9% year over year to $3.2 billion; five out of six of its segments increased revenues in 2016 with four of them above $1 billion in annual revenue.

As for buybacks, it repurchased $4.2 billion of its stock in fiscal 2016 at an average price of $21.31 or 1.3 times its book value of $16.65 per share. Currently, its stock trades at 1.6 times book value, significantly less than the S&P 500 at 2.8.

Stocks to Buy for Buffett: PulteGroup (PHM)

Stocks to Buy for Buffett: PulteGroup (PHM)As Maxwell Smart used to say in the TV comedy Get Smart, “I missed it by that much,” and indeed, PulteGroup, Inc. (NYSE:PHM) did just that in fiscal 2016, buying back $600 million of its stock at an average price of $19.42, 1.3 times its book value per share of $14.64.

Currently trading at 1.5 times book value, slightly less than the industry average, PulteGroup’s book value per share is higher than it has been since 2007 before the real estate correction, a sign that good times are back at the homebuilder.

In fact, business is booming in all six areas of the country where it builds homes including out west where it generated $1.7 billion in revenue in fiscal 2016, 45% higher than in 2015. Equally important, every one of those six areas produced a profit before tax in 2016, another sign the new home market is very healthy at the moment.

PulteGroup looks ready to give its competitors a run for their money in 2017, something it hasn’t done for some time.

Stocks to Buy for Buffett: Qorvo (QRVO)

Stocks to Buy for Buffett: Qorvo (QRVO)Unless you’re a former shareholder of either RF Micro Devices or TriQuint Semiconductor, you might not be familiar with Qorvo Inc (NASDAQ:QRVO), a leader in radio frequency technology for various applications including mobile, infrastructure and aerospace, the name that resulted from the January 2015 merger of the two companies.

While QRVO stock has basically gone sideways since its merger two years ago, it could have been a lot worse having hit a low of $33.30 in February 2016, less than half the price it traded for just a year earlier.

In early February, Qorvo delivered better-than-expected earnings. However, due to delays at some of its smartphone customers in both China and Korea, its fourth-quarter earnings left a lot to be desired; however, it hasn’t dampened investor enthusiasm as QRVO stock is up 4.4% over the past month and 27.8% year to date.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

Bottom line: Qorvo paid $54.23 per share to repurchase its stock in the first nine months of fiscal 2016, 1.4 times its book value per share of $38.45. As of Feb. 27, its shares traded at 1.7 times book value.

Stocks to Buy for Buffett: CSX (CSX)

Stocks to Buy for Buffett: CSX (CSX)The railway operator did not make this list because it met Buffett’s criteria — CSX Corporation (NASDAQ:CSX) paid $28.95 per share to repurchase 38 million shares in fiscal 2016, 2.9 times its book value of $12.56 per share — it made the list because its shares now trade for 3.9 times book, a nod to former Canadian Pacific Railway Limited (USA) (NYSE:CP) CEO Hunter Harrison, who left $90 million in retirement benefits at his former employer so he could negotiate one more kick at the cat with CSX.

If anyone can work some magic on the railway operator, thought to be woefully behind the times, Harrison can.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/stocks-to-buy-warren-buffett-luk-hpe-wrk-glw-phm-qrvo-csx/.

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