- Warren Buffett, the chairman and CEO of Berkshire Hathaway, has long been known as a value investor.
- “Value” can be measured many different ways – from “price-to-book” to “price-to-earnings” – to gauge a stock’s valuation.
- Wells Fargo published a list of 12 stocks that it says Buffett, by a handful of valuation measures, might be interested in now.
- Markets Insider has listed them here, with a breakdown of the measures Wells Fargo analyzed to come up with its collection.
Warren Buffett, the chairman and CEO of Berkshire Hathaway, is known for many things – his fast-food-heavy diet, his philanthropy, his business acumen as one of the wealthiest people in the world, and his investing style.
Buffett has long been known as a value investor. In other words, he likes to invest in companies with underlying fundamentals he finds strong, and can hold for the long-run. He might find those qualities in Apple, since the iPhone giant is Berkshire Hathaway’s largest company holding.
His style is in contrast with growth investors, who tend to invest in companies showing signs of above-average growth, even if the stock price appears to be expensive or classic “value” metrics are high.
In a new note examining several valuation measures that Buffett might utilize, Wells Fargo came up with 12 names he might be interested in now. Here’s a breakdown of the different indicators Wells Fargo considered.
- Five-year average return on equity (ROE) greater than 15%
- Five-year average return on invested capital (ROIC) greater than 15%
- Debt-to-equity (D/E) less than or equal to 80% of the industry average
- Five-year average pretax profit margin (PM) 20% higher than the industry average
- Current price-to-earning ratios (P/E) below ten-year historical and industry average P/E ratios (by consensus)
- Current price-to-book value multiples (P/B) below historical and industry multiples
- Current price-to-cash flow (P/CF) ratios below the industry average
And here are the 12 companies that Wells Fargo believes Buffett could target, based on these qualifications:
Altria
Ticker: MO
Industry: Tobacco
5-Year Average ROE: 139.8%
5-Year Average ROIC: 37.6%
D/E versus Industry D/E: 76.8% vs. 160.8%
5-year average pretax PM versus 5-year average industry PM: 57.8% vs. 30.0%
Current P/E versus Industry P/E: 12.1 vs. 13.9
Current P/B versus Industry P/B: 5.9 vs. 6.6
Current P/CF versus Industry P/CF: 12.5 vs. 33.4
Market Cap: $90.6 billion
Source: Wells Fargo
Cboe Global Markets
Ticker: CBOE
Industry: Financial exchanges
5-Year Average ROE: 61.3%
5-Year Average ROIC: 60.0%
D/E versus Industry D/E: 29.0% vs. 166.6%
5-year average pretax PM versus 5-year average industry PM: 42.5% vs. 34.4%
Current P/E versus Industry P/E: 19.0 vs. 23.2
Current P/B versus Industry P/B: 3.3 vs. 14.0
Current P/CF versus Industry P/CF: 20.5 vs. 20.8
Market Cap: $10.3 billion
Source: Wells Fargo
CNX Midstream Partners
Ticker: CNXM
Industry: Oil and gas
5-Year Average ROE: 22.0%
5-Year Average ROIC: 17.7%
D/E versus Industry D/E: 139.0% vs. 287.0%
5-year average pretax PM versus 5-year average industry PM: 52.2% vs. 24.1%
Current P/E versus Industry P/E: 9.7 vs. 18.8
Current P/B versus Industry P/B: 3.5 vs. 4.1
Current P/CF versus Industry P/CF: 6.4 vs. 7.3
Market Cap: $1.1 billion
Source: Wells Fargo
Cognizant Technology Solutions
Ticker: CTSH
Industry: Technology
5-Year Average ROE: 18.4%
5-Year Average ROIC: 16.8%
D/E versus Industry D/E: 5.7% vs. 108.2%
5-year average pretax PM versus 5-year average industry PM: 18.1% vs. 8.6%
Current P/E versus Industry P/E: 14.9 vs. 20.9
Current P/B versus Industry P/B: 3.4 vs. 4.3
Current P/CF versus Industry P/CF: 13.9 vs. 13.6
Market Cap: $37.4 billion
Source: Wells Fargo
Micron Technology
Ticker: MU
Industry: Semiconductors
5-Year Average ROE: 28.4%
5-Year Average ROIC: 19.0%
D/E versus Industry D/E: 11.0% vs. 84.7%
5-year average pretax PM versus 5-year average industry PM: 21.8% vs. 10.4%
Current P/E versus Industry P/E: 4.4 vs. 22.0
Current P/B versus Industry P/B: 1.1 vs. 5.9
Current P/CF versus Industry P/CF: 2.1 vs. 18.2
Market Cap: $38.9 billion
Source: Wells Fargo
Tapestry
Ticker: TPR
Industry: Luxury retail
5-Year Average ROE: 20.0%
5-Year Average ROIC: 16.2%
D/E versus Industry D/E: 48.4% vs. 62.4%
5-year average pretax PM versus 5-year average industry PM: 15.8% vs. 11.0%
Current P/E versus Industry P/E: 12.9 vs. 22.4
Current P/B versus Industry P/B: 3.2 vs. 5.0
Current P/CF versus Industry P/CF: 9.6 vs. 13.6
Market Cap: $10.5 billion
Source: Wells Fargo
Capri Holdings
Ticker: CPRI
Industry: Apparel
5-Year Average ROE: 38.6%
5-Year Average ROIC: 37.0%
D/E versus Industry D/E: 23.1% vs. 62.4%
5-year average pretax PM versus 5-year average industry PM: 23.0% vs. 11.0%
Current P/E versus Industry P/E: 8.0 vs. 22.4
Current P/B versus Industry P/B: 2.8 vs. 5.0
Current P/CF versus Industry P/CF: 6.1 vs. 13.6
Market Cap: $6.1 billion
Source: Wells Fargo
Cummins
5-Year Average ROE: 19.0%
5-Year Average ROIC: 15.5%
D/E versus Industry D/E: 21.7% vs. 89.2%
5-year average pretax PM versus 5-year average industry PM: 11.6% vs. 9.1%
Current P/E versus Industry P/E: 10.3 vs. 13.7
Current P/B versus Industry P/B: 3.1 vs. 2.6
Current P/CF versus Industry P/CF: 10.5 vs. 19.3
Market Cap: $22.5 billion
Source: Wells Fargo
EQM Midstream Partners
Ticker: EQM
Industry: Oil and gas
5-Year Average ROE: 29.4%
5-Year Average ROIC: 18.5%
D/E versus Industry D/E: 68.8% vs. 287.0%
5-year average pretax PM versus 5-year average industry PM: 66.4% vs. 24.1%
Current P/E versus Industry P/E: 8.9 vs. 18.8
Current P/B versus Industry P/B: 1.1 vs. 4.1
Current P/CF versus Industry P/CF: 3.9 vs. 7.3
Market Cap: $5.3 billion
Source: Wells Fargo
Regeneron Pharmaceuticals
Ticker: REGN
Sector: Pharmaceuticals
5-Year Average ROE: 21.5%
5-Year Average ROIC: 18.3%
D/E versus Industry D/E: 9.0% vs. 52.0%
5-year average pretax PM versus 5-year average industry PM: 30.8% vs. 17.8%
Current P/E versus Industry P/E: 18.6 vs. 30.1
Current P/B versus Industry P/B: 5.5 vs. 5.7
Current P/CF versus Industry P/CF: 21.2 vs. 30.7
Market Cap: $42.6 billion
Source: Wells Fargo
Urban Outfitters
Ticker: URBN
Industry: Apparel
5-Year Average ROE: 15.6%
5-Year Average ROIC: 15.2%
D/E versus Industry D/E: 0.0% vs. 12.8%
5-year average pretax PM versus 5-year average industry PM: 10.3% vs. 6.8%
Current P/E versus Industry P/E: 11.9 vs. 14.5
Current P/B versus Industry P/B: 2.4 vs. 5.8
Current P/CF versus Industry P/CF: 8.7 vs. 8.3
Market Cap: $3.5 billion
Source: Wells Fargo
Bed Bath & Beyond
Ticker: BBBY
Industry: Specialty retail
5-Year Average ROE: 25.4%
5-Year Average ROIC: 18.6%
D/E versus Industry D/E: 51.4% vs. 477.5%
5-year average pretax PM versus 5-year average industry PM: 10.4% vs. 6.6%
Current P/E versus Industry P/E: 7.7 vs. 14.1
Current P/B versus Industry P/B: 0.7 vs. 16.1
Current P/CF versus Industry P/CF: 2.0 vs. 8.2
Market Cap: $2.1 billion
Source: Wells Fargo
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