With only $3.30 per share in cash, Precision’s P/E ratio after the deduction of cash is not that much different from its ratio without the deduction of cash. In addition, Precision’s high double-digit growth rate is not enough to make the company look like a GARP investment.
With a PEG of nearly one, Precision is the second most expensive company in the group, thanks to its small cash balance and P/E ratio. Precision is not a good investment to make after its strong share price gains.
Verisign, Inc. (NASDAQ:VRSN)
| Share Price | Cash Per Share | EPS | P/E Less Cash | Forward P/E less cash | Projected EPS growth rate | PEG ratio | |
| VeriSign | $46.40 | $10.20 | 1.9 | 19.05 | 17.2 | 10.5 | 1.8 |
Next on the list is VeriSign. Verisign, Inc. (NASDAQ:VRSN) has the highest cash per share value on the list. Deducting cash from the company’s balance sheet gives a P/E ratio of 19, which is significantly below VeriSign’s sector average of 56!
However, with a projected EPS growth rate of 10.5% for 2013, the company does not do well when it comes down to the PEG ratio. Verisign, Inc. (NASDAQ:VRSN) is trading on a PEG ratio almost double that of Precision!
So, overall, despite its high cash balance, VeriSign is not a decent GARP investment anymore. Indeed, I believe the stock is now overpriced for the earnings growth it is expected to produce.
Archer Daniels Midland Company (NYSE:ADM)
| Share Price | Cash Per Share | EPS | P/E Less Cash | Forward P/E less cash | Projected EPS growth rate | PEG ratio | |
| Archer | $32.00 | $3.50 | 2.1 | 13.57 | 11.6 | 17 | 0.8 |
The last company on the list is Archer Daniels Midland Company (NYSE:ADM). Now, I know Berkshire would have bought this stock due to its associations with food; food is long term and Berkshire likes long-term investments. Analyzing Archer as a growth stock seems wrong, as the company is not about growth – it is about long-term sustainable investing.
I am going to analyze it anyway. Archer’s EPS fell last year due to higher commodity input costs, but earnings are expected to grow a solid 17% this year, which will put the company on a forward P/E of 11.6 minus cash.
I believe that this rate of growth is highly conservative, as last year’s EPS fell due to higher crop prices. Crop prices are now falling back to levels seen in 2011, which could mean that Archer’s earnings rise back to levels seen in 2011 – a potential EPS growth of 50%-100%.
Anyway, even on the conservative EPS growth figure of 17%, Archer’s PEG ratio is 0.8, the second lowest in the group. Even after gains of 18% since Berkshire Hathaway Inc. (NYSE:BRK.B)’s original investment, Archer Daniels Midland Company (NYSE:ADM) Daniels still appears to offer growth at a reasonable price.
Conclusion
All in all, you may not be able to buy any of these shares at the price that Berkshire paid for them, but this analysis shows that there are still two good value stocks in this group.
Both Deere and (NYSE:DE) Archer Daniels Midland Company (NYSE:ADM) are currently trading at prices that offer future growth at a reasonable price. Precision Castparts is on the edge, however, due to its lack of cash and high P/E multiple, the shares currently look over priced.
If you want to invest like Berkshire Hathaway Inc. (NYSE:BRK.B) and Warren Buffett but didn’t get in early enough, the stock to buy now is Deere for future growth at a reasonable price.
The article Which One of Berkshire’s New Additions Should You Buy? originally appeared on Fool.com and is written by Rupert Hargreaves.
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