Warren Buffett’s annual letter to his Berkshire Hathaway shareholders (released on February 26) has some very interesting information and tips that I think you can use…

  • What Cash Says About Value: Buffett has $38 billion dollars in cash – the largest cash position he’s ever held. He says he’s looking for a big acquisition, but that much cash may say more about how he sees current valuation in the stock market.
  • Value, Value, Value: Despite Buffett’s huge cash position, many of his favorite holdings are at or below what he paid for them. If you know anything about the Oracle of Omaha, he only buys companies he thinks are undervalued.

[ad#Google Adsense]So if you buy into his value thinking, the following four names should be very interesting:

  1. Sanofi-Aventis (NYSE: SNY): Buffett owns 1.8 billion dollars worth of the company. He paid $32 per share for it and with the current price about $35, it’s still cheap!
  2. Kraft Foods (NYSE: KFT): Buffett also owns a ton of food manufacturer Kraft. Having paid $32, the current price is about $31.50.
  3. Johnson & Johnson (NYSE: JNJ): This is another big holding. Buffett paid $61 and the stock is just under that price today.
  4. Wal-Mart (NYSE: WMT): This is a $2 billion position for Buffett and is only a few dollars higher than what he paid for it.

The takeaway here: Despite Buffett’s huge cash position, he obviously considers some stocks cheap.

  • Coca-Cola is Ready to Run: Buffett says the dividend on Coca-Cola (NYSE: KO) will double in the next 10 years. That’s a lot of Coke! He says the dividend should run up to about $3.52 per share from the current $1.76 per share. Remember, his Berkshire Hathaway organization owns 8.6% of KO.
  • Berkshire Hathaway Shares Are Cheap: On a book value basis, Berkshire Hathaway-A shares look cheap. It’s currently trading at 1.3 times its book value and usually sells for around 1.6 times. Berkshire Hathaway-B shares are a little more down-to-earth for most people. But remember, this is a huge company and you won’t see the growth rates that it’s produced in the past.
  • Buffett’s Favorite Bank: Look no further than Wells Fargo (NYSE: WFC), with Buffett expecting the company to raise its dividend soon. This news has been touted for a few months, but the stock is selling for just 11 times earnings and 1.5 times book value. It was three times book value three years ago. Looks cheap!

The bottom line here: Warren Buffett is the most successful stock investor in history and anything he does is worth at least a second look.

Good investing,

— Steve McDonald

[ad#jack p.s.]

Source:  Investment U