The wisdom of Warren Buffett as represented in his stock picking is music to any investor’s ears. His approach is so disciplined and so successful that it stands to reason that if all everyone did was purchase the same stocks he does, and held just as long, we’d all be rich.
Of course, that’s not exactly true, as Buffett’s holdings — through his firm, Berkshire Hathaway (NYSE:BRK.B) — are not made public until many months after his purchase. However, that doesn’t mean there isn’t value in the stocks he selects. After all, he says his ideal holding period is forever. So if it means getting in a bit later than he does, and holding as long as he does, it shouldn’t matter that much in the long run.
But suppose you are just starting out in the market and want to fill your portfolio with some of his selections. Does it make sense even at this late date? It might. It depends on your own risk profile and investment horizon. Here are three Buffett stocks worth examining.
DirecTV (NASDAQ:DTV) has been a personal favorite of mine for some time. While other cable and satellite firms have struggled, DirecTV has consistently increased market share and added subscribers while increasing the average revenue it collects from each subscriber — and it has seen explosive growth in Latin America. DTV uses its capital incredibly efficiently (return on invested capital is 23%), has been buying back stock hand over fist and is a marketing juggernaut.
I got a little worried when second-quarter subscriber numbers disappointed, but the company has bounced back with stellar Q3 earnings. The company added 1.28 million new subscribers in the U.S. alone, and Latin America growth continued unabated. My only question is what the company’s long-term vision might be. There’s still plenty of territory to grab, but at some point one wonders what keeps subscribers from cutting the cord when and if delivery systems become commoditized or Internet delivery supercedes satellite. For now, I think Buffett is right on target, but I have that lingering question in my mind.
I love dollar stores. I compare them often. All this time, I’ve always sided with Dollar Tree (NASDAQ:DLTR) over its competitors. My resolve was shaken when hedge fund guru Bill Ackman took a big position in Family Dollar Stores (NYSE:FDO) and when Warren Buffett opened a position in Dollar General (NYSE:DG).
What are these guys seeing that I don’t? I don’t know what Buffett is thinking. Dollar General sits on $2.77 billion in debt (which is vastly more than its competitors), has net margins well below Dollar Tree’s and still trades at roughly the same valuation as its competitors. I don’t get this one at all, and I say “stay away.”
There is, however, little to argue with regarding Warren Buffett’s holdings in Coca-Cola (NYSE:KO). This is one of those cases where he’s had this stock a very long time and has seen mega-returns. That doesn’t mean KO’s run is over, though. It does, however, look mighty pricey at $66 — not much below where it was when I examined it as part of the “Should You Buy the Dow” series. Don’t jump in right now. Wait for a pullback to at least the mid-50s — uh, stock price, that is, not the 1950s, when Buffett probably bought in.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.