LONDON -- Mary Buffett's (previously Warren's daughter-in-law) book The New Buffettology details a number of criteria that Buffett uses to screen for the shares that he thinks may be worth buying. In an attempt to emulate Buffett, I have used a screen that demands strong earnings growth, conservative financing, high returns on equity and a host of other criteria. Here is my look at three of the largest companies to make the cut.
Fashion house Burberry Group ( BRBY 1.42% ) is one of the U.K.'s strongest brands. Buffett loves brands because of their ability to deliver outsize returns.
In the last five years, sales at Burberry have doubled. The average annual rate of increase has been 16.9%. This has flowed through to even faster profit growth. Earnings per share (EPS) in the last five years has risen at an average rate of 20.5% per annum.
Burberry's operational success has produced high rewards for shareholders. Since 2007, the dividend has more than doubled. In that time, the shares have risen 155%.
The company is forecast to increase earnings 8.1% this year, putting the shares on a 2013 P/E of 19.2. A 2.1% dividend yield is forecast.
Product manufacturers are flocking to testing services firm Intertek ( ITRK 2.02% ).
This has led to rapid growth. In the last five years, sales growth has compounded at an average rate of 21.5% per annum. EPS has nearly matched this, increasing at an average of 20.3% a year since 2007.
Management have rewarded shareholders with an average dividend increase of 17.9% a year for the last five years. In that time, the shares are up 224%.
Intertek is forecast to report a 30.5% EPS increase in 2013, followed by a 13.4% rise in 2014. The dividend is expected to increase 17% this year, followed by a 13% rise for 2014. This puts the shares on a 2014 P/E of 18.9 times earnings, with an expected yield of 1.7%.
Croda International ( CRDA -2.96% ) is a specialty chemicals company that has benefited from booming demand for personal care products. This has been led by an ageing population and disposable income growth.
EPS at Croda has increased at an average rate of 30.9% per annum for the last five years. This is the sixth highest growth rate in the FTSE 100.
Dividend growth has kept track with EPS, rising by an average of 30.5% a year. Analysts are forecasting lower growth going forward. Expectations are for a 6.3% EPS increase this year, followed by a 9% rise for 2014. Similar progression is forecast for the dividend. The shares trade on a 2014 P/E of 16.5, with an expected yield of 2.9%.
While these three shares might tick the boxes for Warren Buffett, he has recently been buying into another FTSE 100 firm. To find out which one, get the free Motley Fool report "The One U.K. Share Warren Buffett Loves." This will help you further understand how this wonder-investor selects stocks. Just click here to get your free copy of this report today.