It was only a few weeks ago that much of the world finally seemed to learn that Warren Buffett is not an infallible investing god. Yes, it turns out even the Oracle of Omaha makes big investing mistakes. Buffett admits he bought some of the banks too early last year and bought oil and gas producer ConocoPhillips (NYSE: COP ) at the height of the oil boom. The lesson here is that all investors are human and it's almost never a good idea to follow someone else blindly with your money.
At the same time, Buffett is still one of the best investors of our time and he has made a lot of interesting purchases in the manufacturing sector. In particular, his purchases of Eaton (NYSE: ETN ) and Ingersoll-Rand (NYSE: IR ) look very savvy to me, as both manufacturing heavyweights have strong comeback potential. Even as the world is down on Buffett, is he making some of his best purchases yet? Manufacturing seemingly never goes out of style and both companies do look cheap to me.
Buffett’s recent purchases gave me the idea to use The Motley Fool CAPS screener to see what other manufacturing companies we might be able to find selling at a discount. Buffett tends to be more of a safety investor, seeking out established companies with solid track records, so we’ll use three criteria for this screen in hopes of finding similar companies:
I used the Motley Fool CAPS rating primarily to limit my search to companies that our 130,000-member investment community perceives as having a solid foundation. I used a price-to-book ratio under 1 to find companies that might potentially be available for less than the price of their net tangible assets. I used the EPS parameter to eliminate unprofitable companies.
Not surprisingly, Buffett’s pick, Eaton, turned up in our screen. Here’s a look at some of the others:
|
Company
|
CAPS Rating
|
Price-to-Book
|
Earnings per Share, ttm
|
|
Ampco-Pittsburgh
|
*****
|
0.46
|
$4.32
|
|
Baldor Electric (NYSE: BEZ )
|
****
|
0.60
|
$2.15
|
|
China Yuchai International
|
****
|
0.26
|
$2.06
|
|
Eaton
|
*****
|
0.84
|
$6.52
|
|
Kennametal (NYSE: KMT )
|
*****
|
0.74
|
$1.75
|
|
Kubota (NYSE: KUB )
|
*****
|
0.99
|
$1.88
|
|
MFRI
|
*****
|
0.54
|
$0.51
|
|
Mueller Industries (NYSE: MLI )
|
****
|
0.93
|
$2.17
|
Data from Motley Fool CAPS. ttm = trailing 12 months
The CAPS screener is only the first step in finding beaten-down stocks with comeback potential. It’s always important to do your due diligence. For instance, even though a price-to-book ratio might be low for a company, it’s important to take a glance at a company’s assets and find what might be overvalued and which assets might not provide real value. (And always beware of goodwill!)
Also, take to heart the old disclaimer, “Past performance is not indicative of future returns.” Do these companies have good prospects moving forward or are they relics about to be swept away? It’s important to do the research to try to separate the gems from the duds. A good first step toward doing your own weeding is checking out the commentary on each company in the Motley Fool CAPS community.
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