Warren Buffett’s High-Upside Picks Include General Motors Company (GM) & National-Oilwell Varco, Inc. (NOV)

Warren Buffett’s holding company Berkshire Hathaway filed its 13F for the first quarter of 2013 with the SEC in May. While the information in this filing may be a bit out of date, we’ve actually found that 13Fs can be used to develop profitable investment strategies (for example, the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and Buffett is generally a longer term investor in any case. We also like to screen filings from top managers according to a number of criteria, including stocks with low PEG ratios; the PEG ratio combines the price-to-earnings multiple with analyst expectations for future growth rates, and while analyst forecasts often aren’t accurate it at least provides a way to estimate a stock’s upside potential. Read on for our quick take on Berkshire’s five largest holdings at the end of March in stocks with five-year PEG ratios of 0.9 or lower (or see the full list of stocks Buffett reported owning).

The holding company increased its stake in DirecTV (NYSE:DTV) by 10% during the first quarter of 2013, to a total of over 37 million shares. With a trailing earnings multiple of 13 and with the sell-side predicting high earnings growth at the satellite TV company, the PEG ratio comes in well below 1. However, we’d note that revenue grew only 8% last quarter compared to the first quarter of 2012 with earnings actually declining. DirecTV (NYSE:DTV) was one of the top picks in Southeastern Asset Management’s portfolio; that mutual fund is managed by billionaire Mason Hawkins (research more stocks Southeastern owns).

Oil and gas refining and marketing company Phillips 66 (NYSE:PSX) was another of Buffett’s high upside potential picks with the filing disclosing ownership of more than 27 million shares. Downstream oil and gas companies are generally seeing low earnings multiples in the current market environment, and the fairly recent ConocoPhillips (NYSE:COP) spinout is no exception with both trailing and forward P/Es of 8. With analysts expecting earnings per share to improve over the long term, we get a five-year PEG ratio of 0.7. Phillips 66 (NYSE:PSX) has risen about 80% in the last year.

Berkshire reported a position of 25 million shares in General Motors Company (NYSE:GM), unchanged from the beginning of the year. General Motors Company (NYSE:GM) trades at 11 times trailing earnings. Many market players, including a large share of analysts and apparently Berkshire’s team as well, believe that automakers are set for high growth as U.S. consumers replace an aging auto fleet and economic conditions in other markets improve. However, recent reports show lower revenue and earnings at General Motors Company (NYSE:GM) than a year ago. General Motors Company (NYSE:GM) made our list of the most popular stocks among hedge funds in Q1 2013 (check out the full top ten list).

Buffett was buying shares of $29 billion market cap oilfield equipment and services company National-Oilwell Varco, Inc. (NYSE:NOV) between January and March. At that valuation the stock carries trailing and forward P/Es of 12 and 10, respectively, and analysts are looking for enough growth to give it a Peg ratio of 0.9. While revenue was up strongly in the first quarter of 2013, however, net income fell by over 20% and so we’d have to investigate it more closely before buying. Viking Global, managed by billionaire and Tiger Cub Andreas Halvorsen, initiated a position of 2.7 million shares during Q1 (find more of Halvorsen’s stock picks).

A new position in Berkshire Hathaway’s portfolio for 2013 was its 6.5 million shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI), a $6.3 billion market cap company which provides infrastructure engineering services primarily to energy customers. The business stands to benefit from increased production of natural gas, and so while its trailing earnings multiple is fairly high at 21 analysts believe that it is actually undervalued- that same valuation is only 12 times forward earnings estimates. Billionaire David Shaw’s hedge fund D.E. Shaw owned 1.6 million shares of Chicago Bridge & Iron Company N.V. (NYSE:CBI) as of the beginning of April (see D.E. Shaw’s favorite stocks).

Disclosure: I own no shares of any stocks mentioned in this article.