The Warren Buffett Experiment

Berkshire Hathaway's (NYSE: BRK-B) iconic head honcho, Warren Buffett, has said that if he were managing a smaller sum of money, he could be notching 50% annual returns.

How? It might not surprise you that his approach is neither the norm nor quick and easy. In an early '90s interview, Buffett suggested that an investor looking for these kinds of returns should do exactly what he did when he ran his private investment partnership: Learn about every publicly traded company in the United States.

When the interviewer protested that there were 27,000 public companies, Buffett replied, "Well, start with the A's."

Though it may sound too ludicrous to actually work, I've decided to take up Buffett's challenge. The only slight tweak I've made is that I've randomized the entire list of 12,638 companies listed on U.S. exchanges with a market cap above $1 million. So I won't technically hit every company, nor will I be actually be starting with the A's.

Ready? Here are the first three from the list.

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

Daiichi Sankyo is a Japanese pharmaceutical company with its eyes on the U.S. market, and big goals for the next few years. The company develops and markets both prescription and over-the-counter medications, and sells them in a number of major global markets, including Japan, North America, Europe, and India.

The company was founded as Sankyo Shoten in 1899; it's been operating as Daiichi Sankyo since 2005, when Sankyo combined with Daiichi Pharmaceutical. Growth for the company has been anemic at best over the past few years, and a big goodwill writedown led to a fiscal 2009 loss. However, management has set some impressive targets. Among the goals for "Vision 2015," it aims to increase revenue to 1.5 trillion yen (a 60% boost from calendar 2009) and nearly triple operating margins to 25%.

Management's goals seem a bit audacious, but at least they're aiming high. Between management's bullish targets, the stock's current valuation, and a decent dividend payout, this company seems worth a further look.

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

My initial impulse when confronted not only with a bank, but a bank from Spain (which has struggled more than most European economies) was to give it a quick "pass" and move on. However, a closer look makes me want to dog-ear this one along with Daiichi Sankyo.

Banesto's 2009 annual report pays a lot of lip service to risk management, as many banks do these days. But it appears that Banesto may actually deliver on that promise. When Global Finance released its list of the world's safest banks in 2009, Banesto came in at 25, well ahead of the first U.S. bank on the list (The Bank of New York Mellon at No. 32).

Though Banesto's results have taken a hit during the global recession, it hasn't experienced the same kind of massive losses as other major banks. Its financial leverage may be a bit high for my taste, but its valuation looks pretty reasonable, and it appears capable of continuing to pay its dividend. As far as banks go, this could be one to watch.

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

K-Swiss basically has one thing going for it -- cash. At the end of 2009, the company had roughly $4.90 in cash per share. That's not too shabby, when you consider the stock price is $9.34.

While this might be the kind of situation that reels in some investors, I'm not enticed to bite. If the stock's price dropped to extreme levels -- say, below net current assets -- that'd be one thing. But the company has recently been losing money and burning cash, and it's expected to continue bleeding red ink. Management's decision to suspend the dividend indefinitely suggests that it may agree with Wall Street.

K-Swiss gets a solid "pass."

This gets us started, but we still have 12,635 companies to go. Be sure to stay tuned for the next installment.

Want a shortcut to this long, tedious process? Dan Caplinger believes he's found five dividend stocks that will serve you well for the next 50 years.