According to the Buffett-Munger Model Portfolio, four stocks with strong gains during the first quarter that align with Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)'s investing strategy are Sleep Number Corp. (SNBR, Financial), Lithia Motors Inc. (LAD, Financial), Usana Health Sciences Inc. (USNA, Financial) and Griffon Corp. (GFF, Financial).
Buffett and Munger said that their Omaha, Nebraska-based insurance conglomerate seeks four key criteria of "good companies trading at fair prices": understandable business, favorable long-term prospects, honest and competent management and attractive valuations. Key characteristics of good companies according to the Buffett-Munger strategy include a high business predictability rank, positive operating margins and earnings growth, low debt-to-revenue growth and low price-earnings-to-growth ratios.
Buffett-Munger model portfolio starts 2021 with a bang
GuruFocus' Buffett-Munger model portfolio returned approximately 17.43% since the January 2021 rebalance, outperforming the Standard & Poor's 500 Index return of 4.91% year to date. The strategy returned an annualized 17% per year over the past three years and an annualized 14.05% per year over the past five years, topping the benchmark returns of 14.22% and 13.96% over the respective periods.
As such, investors may find opportunities in stocks that gained more than 20% in the year to date and still qualify as Buffett-Munger companies.
Sleep Number
Shares of Sleep Number (SNBR, Financial) traded around $139.31 on Wednesday, up approximately 67.14% for the year to date. Even though the stock is significantly overvalued based on its price-to-GF Value ratio of 2.31, Sleep Number's PEG ratio of 0.97 outperforms over 75% of global competitors.
GuruFocus ranks the Minneapolis-based bedding solutions company's profitability 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a four-star business predictability rank and an operating margin that has increased approximately 8% per year over the past five years and is outperforming over 70% of global competitors.
Gurus with large holdings in Sleep Number include Jim Simons (Trades, Portfolio)' Renaissance Technologies and Jeremy Grantham (Trades, Portfolio)'s GMO.
Lithia Motors
Shares of Lithia Motors (LAD, Financial) traded around $370.55, up approximately 27.03% in the year to date. Even though the stock is significantly overvalued based on Wednesday's price-to-GF Value ratio of 2.67, Lithia Motors' PEG ratio of 0.87 outperforms approximately 80% of global competitors.
GuruFocus ranks the Medford, Oregon-based vehicle and parts retailer's profitability 8 out of 10 on several positive investing signs, which include a four-star business predictability rank and an operating margin that has increased approximately 2.9% per year on average over the past five years and is near a 10-year high of 5.23%.
Gurus with holdings in Lithia include David Abrams (Trades, Portfolio)' Abrams Capital Management and Chuck Royce (Trades, Portfolio)'s Royce Investment Partners.
Usana Health Sciences
Shares of Usana Health Sciences (USNA, Financial) traded around $95.27, up approximately 25.77% in the year to date. The stock is fairly valued based on Wednesday's price-to-GF Value of 1.02 while its PEG ratio of 1.56 is near a 10-year low.
GuruFocus ranks the Salt Lake City-based nutritional product manufacturer's profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank, a high Piotroski F-score of 8 and an operating margin that has increased approximately 0.8% per year on average over the past five years and is outperforming over 85% of global competitors.
Griffon
Shares of Griffon (GFF, Financial) traded around $25.14, up approximately 23.26% in the year to date. Even though the stock is modestly overvalued based on Wednesday's price-to-GF Value of 1.21, Griffon's PEG ratio of 1.08 outperforms over 74% of global competitors.
GuruFocus ranks the New York-based garage door manufacturer's profitability 7 out of 10: Even though profit margins underperform more than half of global competitors, the company has a 4.5-star business predictability rank and three-year revenue and earnings growth rates outperforming over 80% of global industrial product companies.
Disclosure: The author is long Usana Health Sciences. The mention of stocks in this article do not constitute a recommendation. Investors must do their own research before investing in the stock market.
Further, different valuation methods may result in different valuation zones. For example, a stock may be undervalued or fairly valued based on the PEG ratio yet may be overvalued based on our GF Value.
Read more here:
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