Warren Buffett’s Stock Portfolio

August 18th, 2009 | Comments (31)

Jae Jun

With Berkshire Hathaway disclosing their holdings in their latest 2nd quarter 13-F, I thought it would be interesting to go through each position that is held and calculate the stock value in hopes of gaining some ideas.

Going through portfolio’s of respected investors is another way of generating ideas. Davy Bui of The Enlightened American does a fine job of tracking and displaying hedge fund holdings of respected investors in an easy to read format.

There are 41 positions in the portfolio of Warren Buffett and Berkshire so I’ll be breaking it up over numerous posts.

(Download the free E-Book format of Warren Buffett Stocks Series)

Old School Value’s Circle of Competence

Although I’ll try to put a value on each company, except financials, there are industries that are outside of my circle of competence which I may calculate incorrectly.

E.g. I don’t know much about pharmaceuticals and commodities and how to look at these businesses as a future going concern which will make it difficult to apply a growth rate that I would be comfortable with compared to others.

Warren Buffett Stock Picks

Going through the first 10 Stock Ideas

  • American Express (AXP) – outside circle of competence
  • Bank of America (BAC) – outside circle of competence
  • Becton Dickinson & Co (BDX) – Latest addition to the portfolio
  • Burlington Northern Santa Fe (BNI)
  • CarMax (KMX)
  • Coca Cola (KO)
  • Comcast Corp (CMCSA)
  • Comdisco Holding (CDCO)
  • ConocoPhilips (COP)
  • Costco (COST) - analysis

(Current stock prices vary due to timing of writing)

Becton Dickinson & Co (BDX) Stock Value

Becton, Dickinson and Company (BDX) is a medical technology company that operates through three business segments: BD Medical, BD Diagnostics, and BD Biosciences.

BDX Spider Graph

BDX Spider Graph

(The above graph is from an analysis of BDX which is posted at Dividend Growth Investor.)

  • Gross, operating and net margins steadily increasing even in recessionary environment
  • FCF positive for more than 10 years
  • Inventory turnover consistent but margins have increased. Leads to higher efficiency and profit.
  • ROA and ROE increasing steadily
  • Reduced debt
  • Has plenty of FCF to pay down debt rather than issue stock or seek loans
  • CROIC is very steady at 17%. Company makes 17c off every $1 of cash invested
  • FCF/sales = 12%. Converts 12c of every dollar in sales to FCF.

Intrinsic Value Estimates

DCF Stock Value: $87

Graham Stock Value: $110

Competitor and Peer Comparison: $76

BDX Price vs Value Graph

BDX Price vs Value Graph

Burlington Northern Santa Fe (BNI) Stock Value

Burlington Northern Santa Fe is a holding company and engaged primarily in the freight rail transportation business.

  • Impressive FCF growth previous 4 years and especially last year
  • High capex but latest annual result was extraordinary
  • lower sales and margins but improved efficiency in returns and turnover
  • CROIC is on the low side at 3%
  • Top line growth is also above average at 14%
  • Debt to equity ratio is above 200% which isn’t uncommon for capex heavy companies

Intrinsic Value Estimates

DCF Stock Value: $87

Graham Stock Value: $145

Competitor and Peer Comparison: $76

BNI Price vs Value Graph

BNI Price vs Value Graph

CarMax (KMX) Stock Value

The Company is a retailer of used cars.

  • Increase in gross margins but decline in operating and net margin
  • Increased cash levels but a huge amount
  • Highest accounts receivables to date. Check whether it is due to non paying customers or more lenient terms.
  • No intangibles (as it should be with low to no moat companies)
  • No long term debt
  • Capex a little lower than the upper range
  • Latest year cash from operations included higher amount of interest from securities and cash from reduction inventory
  • Inventory turnover at the upper range
  • FCF and CROIC close to 0%

Intrinsic Value Estimates

DCF Stock Value: N/A

Graham Stock Value: $11 – $15

Competitor and Peer Comparison: N/A

Can’t seem to get within an acceptable fair value range on CarMax.

Thin margins, cyclical, inconsistent with low returns. Not quite sure how this position fits in. Definitely doesn’t look like a Buffett pick.

Coca Cola (KO) Stock Value

No introduction needed.

Intrinsic Value Estimates

DCF Stock Value: $38 – $44

Graham Stock Value: $61

Competitor and Peer Comparison: Looks fairly valued

KO Price & Value Graph

KO Price & Value Graph

Comcast Corp (CMCSA) Stock Value

Comcast Corporation is a provider of cable TV, internet and phone services.

  • FCF and CROIC are close. 10.9% and 9.4% respectively. This scenario occurs when a company has  matured without much growth to be expected.
  • Excellent margins and very stable returns in both the 2001 and 2008 recession
  • Not over leveraged
  • Plenty of FCF to cover debt
  • Big decrease in tangible shareholders equity since 2005
  • Intangibles more than double in 2007

Intrinsic Value Estimates

DCF Stock Value: N/A

Graham Stock Value: $22

Competitor and Peer Comparison: $12.48

CMCSA Graham Formula

CMCSA Graham Formula

Comdisco Holding (CDCO) Stock Value

Simply put, CDCO is a liquidation special situation.

Using Ben Graham Net Net Spreadsheet, the liquidation value looks to be worth $8.38 while the current price is at $7.50. With most of the assets in cash, this would have been a pretty good liquidation play had the spread been wider.

Since the company emerged from bankruptcy in 2002, it doesn’t seem like CDCO is in a hurry to sell the remaining assets.

With real liquidations involving some fees, the current 11% margin of safety isn’t big enough to take a bite for an investor like myself.

Ben Graham Net Net Value Estimate

Net Net Working Capital value: $8.38

CDCO Ben Graham Net Net Value

CDCO Ben Graham Net Net Value

ConocoPhilips (COP) Stock Value

The investment which Buffett admits he made a mistake for buying at too high a price.

  • First time looking at the financials but now see from the rear view mirror why Buffett announced it was a big mistake
  • COP lost a HUGE amount of money in 2008
  • Increased debt to $27 billion
  • Large impairments seem to be showing up each quarter wiping out shareholders equity
  • Good FCF numbers except for 2008. Will normalize for dcf value below

Intrinsic Value Estimates

DCF Stock Value: $64 adjusted to normalize a terrible year

Graham Stock Value: N/A

Competitor and Peer Comparison: Looks to be on par with competitors

In it’s current state, COP doesn’t look like a good hold.

Costco (COST) Stock Value

An excellent analysis and description of Costco (COST), its operations and valuation by Brad of TMWTFS.

  • FCF isn’t as high as it used to be
  • Rock solid margins – proves management is on top of their game
  • Inventory continues to churn at a faster rate
  • Average CROIC but somewhat consistent

Intrinsic Value Estimates

DCF Stock Value: $39

Graham Stock Value: $47 looks to be the upper limit

Competitor and Peer Comparison: More expensive than WMT. Should be around $37 based on competition.

Summary

Some obvious Buffett stock picks in this list while several seem to have been by other managers.

Took quite a while to get this all together but I hope you are getting some ideas as well how I quickly look at companies to filter what I deem to be the good from the bad.

About Jae Jun


Jae Jun is the founder of Old School Value. He is on a mission to provide practical and actionable value investing tools, tutorials and educational material to help empower the individual investor. Keep in touch with Jae via any of the methods linked below.

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  • Fabrice

    Nice article and new Website look is terrific.

    Very good job Jae Jun. Keep going!

  • http://www.oldschoolvalue.com Jae Jun

    Hi Fabrice,

    Appreciate the comment. Thanks!

  • http://compoundinglife.com KenC

    Pretty sure Carmax is a Lou Simpson position (Capital Allocator at Geico) as is BAC. Geico is the only subsidiary that is allowed to make its own investments.
    .-= KenC´s last blog ..Buffett: Don’t hate the player, hate the game =-.

  • http://enlightened-american.com Davy Bui

    Hey Jae,

    Thanks for the shout out. Funny enough, I cover all the big names except for Warren Buffet; Berkshire’s 13F is formatted differently than everyone else’s and I’m too lazy to do it manually. Besides, sites like Old School Value have the Buffett tip well-covered. Like Munger says, I’ve got nothing to add.

    I have to second the positive comment on the site redesign — it looks fantastic!

    Great post, too, btw. I’ll have to take a look at BDX.
    .-= Davy Bui´s last blog ..Seth Klarman, Marty Whitman & David Einhorn 2009 Q2 13F Filings =-.

  • http://www.oldschoolvalue.com Jae Jun

    @ KenC,

    I agree that Simpson is the purchaser of CarMax but didn’t know that he was the only one allowed to make individual investments. Will have to look into that.

    Thanks.

    @ Davy,

    Just giving a fellow investor and site where I get ideas due respect.
    I looked Seth Klarman’s positions yesterday and wasn’t surprised to see there wasn’t much action taking place in the last quarter.

    Will have to read up on Einhorn considering he sold his gold positions.

  • http://www.wiftsinvestment.com rupneu1

    Thanks for the analysis of the companies. Actually, I am an end user of most of the BDX products and our company is probably one of their significant customer. Even before Buffet’s holdings were released, I was looking at BDX since I know the field pretty well and know that BD has significant “moat” on this field. However, I haven’t bought BDX because I thought it was fairy valued around $70-75. i guess it did go down to $58 at some point, and would have been a good buy.
    .-= rupneu1´s last blog ..Warren Buffet buys more J&J =-.

  • http://compoundinglife.com KenC

    @ Jae Jun,

    I have read so many Buffett related books and articles I can’t tell you specifically where I read it. But I believe it to be a pretty well known fact that Geico is the only part of BRK that does its own capital allocation. I will see if I can dig up an precise reference.
    .-= KenC´s last blog ..Buffett: Don’t hate the player, hate the game =-.

  • 4cinvestor

    Hi Jae,

    Excellent Work.

    BTW, did you notice that in BRK, stock picks has only around 19% of the total book value ( check 2008 annual report)?

    This can mean that the value of BRK should not be strongly impacted by those public companies performance.

  • http://www.oldschoolvalue.com Jae Jun

    @rupneu1,
    Do let me know if my short analysis is incorrect on BDX

    @KenC,
    I’ll take your word for it ;)

    @4cinvestor,
    Thanks. I didn’t compare the stock value holdings to the total book value but considering how many companies make up Berkshire, especially Geico, it does seem like a small portion.

    Buffett also has a lot of derivatives and other investments that are listed in the 13-F which would have added to his performance.

  • Hanna

    Jae, I feel so lucky that I found your website through another investment blog. What can I say about your investment spreadsheet toolkit? one word: brilliant!

  • http://www.oldschoolvalue.com Jae Jun

    Thanks Hanna!
    Glad you are finding the spreadsheet helpful and easy to use.
    Email me anytime with additional questions.

  • Tyler

    what about BYD.DF

  • http://www.oldschoolvalue.com Jae Jun

    Sorry but I dont invest or look into gambling related stocks so I dont have anything to offer for BYD.

    Write up requests in the forum section. It’ll make it easier to track and keep it focused.

  • investor

    The KO intrinsic value is a tad high, dont you think?
    I calculated it and got much lower IV:
    Walk through

    If we assume initial earnings of $5.8B grow at a rate of 10.28%, and we discount those future earnings at a rate of 15.00%, we arrive at IV of $47.06. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%. (using quicken.com valuation tool)

  • http://www.oldschoolvalue.com Jae Jun

    Which intrinsic value do you see as the high one? The DCF or Graham?
    I assume it is the Graham one because the DCF I have is in the 40′s as well.

    Since the Graham formula uses earnings, it is likely to be higher.

  • investors

    Hi Jae,
    Regarding your question:
    I do believe it is Graham’s.

    You can see the full analysis here: it is free to register (you can enter whatever info. you want as there is no email check):

    http://investing.quicken.com/research/evaluator.asp?symbol=ko

  • http://www.oldschoolvalue.com Jae Jun

    I didn’t know that Quicken provided a calculator. Real cool. Thanks a lot. I’ll add it to my list.

    When I compared my DCF with the Quicken one using the same growth rate of 8.93%, starting with a FCF value of $5.8b, but I used a 9% discount rate as I do for all stable blue chips, I get a DCF intrinsic value of $42.75.
    Compared to Quicken’s $42.45 it is the same.

    Now my question is do you expect to get a 15% or 9% return from KO annually?

  • frank

    Hi Jae,

    I thought I would take a chance on Insm when you went in at 0.85
    (as a newbie)

    The price is now 1.05 with a target price of $2.00 (I think I saw in S&P)

    I do not see it in your portfolio here. Do you still have it.

    What has attributed to the raise in price other then possible lift from being a health stock and having good cash position to keep it going.

    I like your approach to stock investing and read every thing I can find on Warren Buffet.

    Keep writing those great articles,

    they are very good.
    Thank you,

    Frank

  • http://www.oldschoolvalue.com Jae Jun

    Hi Frank,

    This portfolio is an analysis of Buffett’s portfolio, not mine.

    Also, don’t trust the S&P. They have no idea what is going on with INSM.
    But here is the news that leaked out.
    http://investorshub.advfn.com/boards/read_msg.aspx?message_id=46695692
    http://investorshub.advfn.com/boards/read_msg.aspx?message_id=46820292

    I also believe that Merck is very interested in INSM. While INSM have insinuated that they prefer a reverse merger, with the way things are going and how Merck is mentioning INSM in their conferences, looks to be a great opportunity.

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