Berkshire Hathaway 's Warren Buffett is a
value investor, right? Everyone knows that!
Well don't tell that to Gerald Martin and John
Puthenpurackal of American University and UNLV. In 2008, the
two completed what they call "the first rigorous examination
of Berkshire Hathaway's investment performance" -- a paper
that not only analyzed the superior investment performance of
Buffett, but also looked at his investing style.
Besides concluding that Buffett's
superior investment returnssince 1976 were more than just
luck -- as if we didn't know that already! -- Martin and
Puthenpurackal concluded that Warren Buffett is ... wait for
it ... a large-cap
growthinvestor.
The definition of growth that the researchers used was one
that separates value and growth stocks based on the inverse
of book value multiples and classifies value stocks as those
with the highest book-to-market ratio and pegs those with the
lowest as growth stocks. According to the paper, growth
stocks accounted for more than 40% of Berkshire's
investments, while true value picks made up less than 20% of
Buffett's buys.
But let's not get too crazy here. After all, Buffett is
still very much a value investor by his own definition --
that is, he only buys stocks that offer a discount to the
company's intrinsic value. But what this study does suggest
is that if we're looking for Buffett-esque stocks, our best
bet is to look for
high-quality companiesrather than rummage through the
bargain bin.
To track down stocks that might fit the bill, I've
enlisted the help of The Motley Fool's
CAPS
communityand its stock screener. I focused my search on
stocks that are returning 10% or more on their equity, are
trading
abovebook value, and have been highly rated by the
CAPS community members. (You can run the same screen by
clicking here.)
Company
Return on Equity (TTM)
Book Value Multiple
CAPS Rating
(out of 5)
Cisco (Nasdaq: CSCO)
15.9%
3.4
****
Caterpillar (NYSE: CAT)
15.6%
4.1
****
Southern Copper (NYSE: PCU)
12.1%
7.6
****
3M (NYSE: MMM)
22.7%
4.2
*****
Intuitive Surgical (Nasdaq: ISRG) Continued... |