Berkshire Hathaway's Warren Buffett is a value investor, right? Everyone knows that!
Well, don't tell that to Gerald Martin of American University and John Puthenpurackal of UNLV. In 2008, the two published 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 Buffet is ... wait for it ... a large-cap growth investor.
In defining growth, the researchers separated value and growth stocks based on the inverse of book value multiples. They then classified value stocks as those with the highest book-to-market ratio, and pegged 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).
|
Company |
TTM Return |
Book Value |
CAPS Rating
|
|---|---|---|---|
|
Apple |
24.5% |
4.0 |
**** |
|
Johnson & Johnson |
30.2% |
3.3 |
***** |
|
Garmin |
32.0% |
1.9 |
**** |
|
McDonalds |
30.1% |
4.6 |
**** |
|
Petrobras |
26.2% |
2.3 |
***** |
Source: Capital IQ, a division of Standard & Poor's, and CAPS as of March 19. TTM = trailing-12-month.
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 Petrobras?
The anatomy of a growth stock
We probably won't see Warren Buffett sniffing around Petrobras any time soon, given the burns he sustained trying to grab ConocoPhillips
But the question may be why an investor would choose Petrobras and not ConocoPhillips, Chevron, or BP
I think this is the best long term oil play. They have large amounts of proven reserves and they aren't bogged down by OPEC regulations or the constant threat of US congress scrutiny whenever gas prices get too high. Plus Brazil is a stable, growing economy, which is something a lot of other state owned oil companies can't say about their home countries.
A lot has happened in the oil market since Schmacko wrote that pitch. Oil ascended to nearly $150 per barrel and then plummeted to under $40 before recovering to just over $50 today. But the fundamentals that Schmacko pointed out largely remain intact. Sure, Brazil has taken an economic hit with the rest of the world, but it is still one of the world's most promising economies.
If we want to look beyond what Schmacko has shared, another bullish factor on Petrobras is the company's dedication to increasing reserves and production. While many companies have had to cut back spending due to low oil prices and economic hardship, Petrobras has embarked on an ambitious spending plan that could put it in a very enviable position if oil prices recover even a moderate amount.
CAPS or bust
But here's the real question: What do you think of Petrobras' prospects? Let the CAPS community know what you think by clicking over and sharing your opinion with the 130,000 investors already participating.
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