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International Business Machines Corp. (IBM), Wells Fargo & Co (WFC): Billionaire Warren Buffett’s Top Stocks

Published on June 3, 2013 at 12:34 pm by The Motley Fool in Hedge Funds
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Billionaire Warren Buffett of Berkshire Hathaway Inc. (NYSE:BRK.B), the famed value investor, uses a strategy of discipline and patience. What Buffett really looks for are great companies trading at a discount to their intrinsic value, and then he holds them them for a long time.

Warren Buffett portrait

Saying of his strategy, Buffett notes that he wants “businesses to be one that we can understand, with favorable long-term prospects, operated by honest and competent people, and available at a very attractive price.” Outlined below are Buffett’s top five stocks going into the second quarter (check out Buffett’s cheap stocks).

Buffett’s number one stock remained Wells Fargo & Co (NYSE:WFC), making up 19.9% of his 13F portfolio. Wells has been one of the better-performing banks throughout the financial crisis.


Wells Fargo & Co (NYSE:WFC) kept up its solid performance, posting first quarter EPS of $0.92, compared to $0.75 for the same quarter last year and beating consensus. As of last quarter, Wells’ allowance for loan losses was down 33% from its early 2010 peak. This declining loan loss provision should help drive earnings higher. Also, going forward, the continued rise of mortgage loans should help boost the bank’s earnings, where Wells Fargo & Co (NYSE:WFC) is a national leader in mortgage banking.

Coming in second was The Coca-Cola Company (NYSE:KO), which made up 19% of Berkshire Hathaway Inc. (NYSE:BRK.B)’s portfolio. Coca-Cola is the worldwide beverage company, but it’s looking to the international markets for future growth, including Latin America, India, Russia and China. Coca-Cola has invested some $2 billion in India over the past 18 years, and the beverage company now has three of the top five sparkling brands in India.

For China, The Coca-Cola Company (NYSE:KO) is looking to invest upwards of $4 billion in the country over three years, as well as invest $3 billion in Russia between 2012 and 2016, and $8 billion in Brazil through 2016. This should help the company balance out its geographical revenue makeup, where Coca-Cola hopes that developed, developing and emerging markets will contribute 33% of revenue each by the end of 2020.

International Business Machines Corp. (NYSE:IBM) was in third and makes up 17% of the portfolio. IBM has a market-leading position in IT services and servers. First- quarter earnings came out to $3.00 per share, versus $2.78 for the same quarter last year. One of IBM’s big positives is that it generates more than 50% of its revenue outside the U.S., and in 2012 the revenue generated from growth markets made up 24% of revenue.
This is in part thanks to International Business Machines Corp. (NYSE:IBM)’s strong hold in the Asia-Pacific and Latin American markets, where demand for IT services is rising from the likes of telecommunications, oil & gas and banking companies.
However, revenue growth is expected to be modest at best over the interim, up 0.5% in 2013 and then 2.5% in 2014. What’s more is that the company’s valuation appears to be in fair value range. International Business Machines Corp. (NYSE:IBM) trades at 14.5 times earnings, while other major tech giant Cisco Systems, Inc. (NASDAQ:CSCO) is at 13.5 times and Intel Corporation (NASDAQ:INTC) 12.2 times. However, Buffett has fellow billionaire Ken Fisher behind him as the second-largest hedge fund owner by shares (check out Fisher’s latest moves).
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