Warren Buffett Is a Growth Investor

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Berkshire Hathaway's (NYSE: BRK-B  ) 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. Earlier this year the two completed what they call "the first rigorous examination of Berkshire Hathaway’s investment performance" -- a paper that analyzed not only the superior investment performance of Buffett, but also looked at his investing style.

Besides concluding that Buffett's superior investment returns since 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 growth investor.

The definition of growth that the researchers used was one that separates value and growth stocks based on the inverse of book value multiples; it 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 companies rather than rummage through the bargain bin.

To track down some stocks that might fit the bill, I've enlisted the help of The Motley Fool's CAPS community and its stock screener. I focused my search on stocks that are returning 10% or more on their equity, are trading above book value, and have been highly rated by the CAPS community members (you can run the same screen by clicking here).


TTM Return on Equity

Book Value Multiple

CAPS Rating (max 5)

Transocean (NYSE: RIG  )




Cisco (Nasdaq: CSCO  )




Intuitive Surgical (Nasdaq: ISRG  )




Corning (NYSE: GLW  )




Caterpillar (NYSE: CAT  )




Source: Capital IQ, a division of Standard & Poor's, and CAPS as of March 4.

While these aren't meant to be formal recommendations, they're a great place to kick off some more research. In fact, why don't we start by taking a closer look at Cisco.

The anatomy of a growth stock
When President Obama addressed the nation last week, he said we need to make sure our financial markets are rewarding "drive and innovation" and punishing "short-cuts and abuse." How should we interpret this? The abuses seem pretty obvious -- companies like Citigroup (NYSE: C  ) and Lehman Brothers leveraged themselves to the hilt and took on risk that in many cases they didn't even understand, all in the hopes of turning a short-term profit. Today the collapse of these firms is holding the global financial system hostage.

As for that "drive and innovation," well, I'd wager that the president was referring to companies just like Cisco. He's looking for companies that are hard at work tinkering in their labs to create new products that will make workers more productive and help drive new economic growth. One of the original innovators in the area of routers, today Cisco is a behemoth in the networking world, developing and selling routers, switches, video conferencing equipment, security products, wireless networking gear, and a host of other networking products.

Business for Cisco is understandably slow right now, as companies around the world try to slash their budgets to keep afloat during the recession, but it has more than enough financial strength to ride out the rough tide. As of its most recent balance sheet, the company had darn near $30 billion in cash and investments, against roughly $7 billion in debt. And while profit for its most recent quarter fell 27%, it doesn't take much of a leap of faith to assume that businesses of all types will be back to gearing up with Cisco products once the recession has run its course.

CAPS member paggles recently become one of the nearly 8,000 Cisco bulls on CAPS and highlighted the networking specialist's industry dominance and low stock valuation:

Cisco sets the standrad in fiber optics communication. 10 years ago it was priced at 60 times earnings and now has a p/e of less than 13. It is positioned well with lots of cash for this cash-strapped economy. It is a growth tech company with no dividend because it will continue to outpace its competitors and become a dominant player in the new economic world order.

CAPS or bust
But here's the real question: What do you think of Cisco's prospects? Let the CAPS community know what you think by clicking over and sharing your opinion with the 125,000 investors already participating.

Further CAPS Foolishness:

Berkshire Hathaway is a Motley Fool Inside Value and a Motley Fool Stock Advisor pick. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway, but does not own shares of any of the other companies mentioned. The Fool’s disclosure policy thinks Warren Buffett has earned the right to call himself any kind of investor he wants.

Read/Post Comments (0) | Recommend This Article (12)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

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: 845138, ~/Articles/ArticleHandler.aspx, 10/25/2016 3:01:52 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...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:02 PM
BRK-B $143.83 Up +0.23 +0.16%
Berkshire Hathaway… CAPS Rating: *****
C $49.58 Up +0.01 +0.02%
Citigroup CAPS Rating: ***
CAT $85.99 Down -0.34 -0.39%
Caterpillar CAPS Rating: ***
CSCO $30.46 Up +0.31 +1.03%
Cisco Systems CAPS Rating: ****
GLW $23.89 Up +0.07 +0.29%
Corning CAPS Rating: *****
ISRG $685.00 Up +6.98 +1.03%
Intuitive Surgical CAPS Rating: ****
RIG $10.11 Down -0.39 -3.71%
Transocean CAPS Rating: ****