Investment Insights from Warren Buffett’s Big Buys: Wells Fargo & Company (WFC) and More

WABCO Holdings

The fund manager doubled its position in the auto parts maker WABCO in the latest quarter, bringing the total shares owned to 0.35 percent of the total portfolio. The company exceeded earnings estimate in previous quarters, but failed to do so in the latest by a small margin of less than 2 percent. Meanwhile, although its profit margin has been remarkably stable at a double-digit rate, quarterly revenue has been on the slump at a comparable rate.  As of Sept. 30, 2012, profit margin is at 13.17%, while revenue went down by 16.71%. The stock price of WABCO is going up at a robust rate, thanks to its huge growth prospects in the years to come. WBC’s earnings are estimated to swell by an average annual rate of 20 percent in the next five years.

Archer Daniels Midland

Berkshire Hathaway initiated a position in Archer Daniels worth about $163 million in the latest quarter. The farm products company comprised 0.22 percent of the fund manager’s total portfolio. ADM has failed to meet consensus estimates in the latest quarter by a notable margin of 27 percent. Nonetheless, the company has maintained its profit margin at about 2 percent. Its revenue also grew by 6.93% in the fourth quarter, which marked a significant recovery when compared to the previous quarters of 2012, when the growth ranged from -0.43% to 5.37%. ADM continues to pay dividends to its investors by an increasing amount. Within the last 3 years, the annualized dividend grew by an average rate of 7.7%. The stock price is in an upward swing because of the company’s encouraging growth expectations. The earnings per share have grown by 10 percent annually within the next 5 years. It also enjoys a healthy valuation for its P/E ratio of 15.10.

Warren Buffett’s big buys indeed present a good mix of stocks. It is apparent that the fund manager put emphasis on healthy valuations. All of these stocks have been exhibiting robust stock prices and still got huge allowance in their valuations. Despite the downward trend in the revenues of some, they are able to balance these through their high margins. Likewise, placing an excellent dividend stock like WFC, which has a remarkable payment growth, on top of its portfolio guarantees the fund manager dividend income of at least $387 million in a single year based on the 2012 annualized amount. This is indeed a great strategy that investors should emulate.

The article Investment Insights from Warren Buffett’s Big Buys originally appeared on Fool.com and is written by Aubrey Tabuga.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.