Research Like Buffett

How did Warren Buffett become one of the best investors who's ever lived? Even though he's often downplayed the importance of a stratospheric IQ when it comes to investing, Buffett is one smart cookie. I'm sure he's also had a bit of luck along the way.

But one thing that's always jumped out at me is the man's work ethic and extreme dedication to investing. Case in point: In his early years, Buffett claims that he found opportunities by scouring the entire catalogue of publicly traded companies.

Not surprisingly, when asked how individual investors can score the juiciest returns, Buffett has suggested taking the same nose-to-the-grindstone approach. And that's exactly what I've started to do.

Continuing that herculean effort, here are the next four stocks on the list.

Company

IFS Construction Services

Industry

Building products

Comparable Companies

Owens Corning (NYSE: OC  )
Geberit

Market Cap

$8.8 million

Price-to-Earnings Ratio

NM

CAPS Rating

NA

Source: CAPS, Yahoo! Finance, and Capital IQ, a Standard & Poor's company.

IFS is an Australia-based company that provides framework and scaffolding services for construction projects. The company is only a bit over two years old, but management has its sights set on growing quickly and expanding margins by tapping infrastructure development in Asia and the Middle East.

I don't see much of a competitive moat in this business. That doesn't mean that it will fail, but it does mean that competition won't have a tough time challenging growth and chipping away at margins.

Early financial results don't do much to change the picture -- the company has reported both negative net income and free cash flow. I feel pretty comfortable stamping a "pass" on IFS.

Company

National Semiconductor Corp (NYSE: NSM  )

Industry

Semiconductors

Comparable Companies

Linear Technology (Nasdaq: LLTC  )
Analog Devices

Market Cap

$3.4 billion

Price-to-Earnings Ratio

52.0

CAPS Rating

**

Source: CAPS, Yahoo! Finance, and Capital IQ, a Standard & Poor's company.

I'll admit it, I have a soft spot for analog and mixed-signal semiconductor companies. It's not that I enjoy the highly cyclical nature of the semiconductor industry in general, it's more that I appreciate the high level of skill that goes into engineering high-quality analog devices.

That engineering expertise isn't just an academic matter, it's what allows National Semi to post gross margins above 60% on its chip sales.

National Semi certainly isn't alone in its analog and mixed-signal expertise, but it is an industry where the technical hurdles are such that Joey Bagadonuts can't easily hang a shingle and start competing. And even if Joey does have some technical know-how, it's still going to take some time to build the kind of reputation that would let him compete for major customers like Apple (Nasdaq: AAPL  ) and Nokia (NYSE: NOK  ) .

Despite a leveraged buyback in 2007, the company still has a pretty reasonable balance sheet, it produces healthy amounts of cash flow, and it even pays a moderate dividend. Though the stock's valuation doesn't look particularly appealing, things have been looking up lately, and we could be looking at the early stages of the next cyclical upswing.

I'm definitely dog-earing National Semi.

Company

Zaldiva

Industry

Specialty Retail

Comparable Companies

1-800-Flowers.com
Overstock.com (Nasdaq: OSTK  )

Market Cap

$1.0 million

Price-to-Earnings Ratio

NM

CAPS Rating

NA

Source: CAPS, Yahoo! Finance, and Capital IQ, a Standard & Poor's company.

Zaldiva is a retailer of comic books, toys, and collectibles. The company has a website at Zaldiva.com and a brick-and-mortar store in Ft. Lauderdale, Fla.

While I can understand the desire to own and run a business like this -- particularly for a big fan of comics -- there's little appeal to speak of here from an investor's perspective. Competitive advantage is razor thin (if it even exists), and the company has been burning through cash for years. This is an easy pass.

Company

PowerSafe Technology

Industry

Electronic Components

Comparable Companies

AU Optronics (NYSE: AUO  )
Amphenol

Market Cap

$8.1 million

Price-to-Earnings Ratio

NM

CAPS Rating

NA

Source: CAPS, Yahoo! Finance, and Capital IQ, a Standard & Poor's company.

I'll admit it, after reviewing the most recent presentation from PowerSafe Technology, I was intrigued. The company is working on discrete amplification sensor technology, which is basically a way for semiconductors to significantly amplify a signal without introducing too much distorting noise. The technology could be very useful in a wide variety of industries.

However, the key phrase above is "working on." The company is still in development stage and burning through invested capital. This is another easy pass.

We've now knocked another four off the list, but still have 12,627 companies left to go. Be sure to stay tuned for the next installment!

Think this process is too long and tedious? Austin Edwards believes he's found your next big winner.

Nokia is a Motley Fool Inside Value selection. Apple and Linear Technology are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Linear Technology, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants ...


Read/Post Comments (2) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2010, at 11:05 AM, renegade1972 wrote:

    LAS VEGAS, March 16, 2010 – Ideal Financial Solutions, Inc. (IFSL) today announced audited financial results for the years ended December 31, 2008 and 2009. Revenue for the year ended December 31, 2009 of $7.3 million, was a 690% increase over $924,000, the revenue for the prior year. Net income for 2009 year was $883,500, which represents an increase of 375% compared to the net loss ($323,000) in the prior year. In addition, cash flows from operations were $736,000, which was an increase of over 900% compared to the prior year of 72,000.

    These financial statements include an increase in total assets of nearly 300% from $179,000 to $752,000, which mainly consists of cash and merchant cash reserves. Total liabilities resulted in a decrease of 25%, which consists of a 190% increase in accounts payable due to increased operations, and decreases in both accrued wages and notes payable of a combined $627,000 or 41% less than the previous year.

    why is this not new this is a company beating the odds

  • Report this Comment On March 17, 2010, at 4:57 PM, TMFKopp wrote:

    A few quick thoughts on IFSL...

    1) You'd think that a company focused on financial services would realize that you can't calculate a % increase on a loss ("Net income for 2009 year was $883,500, which represents an increase of 375% compared to the net loss ($323,000) in the prior year.")

    2) I always get wary when you have a management team without any clear, relevant background in the industry.

    3) It's hard to say a whole heck of a lot about the company's financials, because it doesn't make them available (or at least easily available -- its Investor Relations page is barer than Old Mother Hubbard's cupboard).

    Matt

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1135396, ~/Articles/ArticleHandler.aspx, 9/21/2014 8:08:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement