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Buy These Stocks for Less than Warren Buffett Paid

March 09, 2012 | About:
Holly LaFon

Holly LaFon

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Warren Buffett’s stock holdings that are now trading for less than the price he paid for them are: Sanofi-Aventis (SNY) and Tesco Plc (PSCDF.PK). Both of these stocks are from his international portfolio. Another, BYD Co. Ltd. (BYDDF), is down significantly, but still not trading for less than he paid for it. In January, Buffett, CEO and Chairman of Berkshire Hathaway (BRK.A)(BRK.B) announced that he had increased his stake in British retailer Tesco from 3.21% to 5.08% of the company. He seems to like the stock quite a bit as he made the purchase, worth $1 billion, the day after Tesco issued a surprise profit warning that sent shares down 19%.

Buffett reported in his shareholder letter that he bought the he had made 6% on the holding as of Dec. 31, 2011. But year to date the stock is down 19.6%, meaning it is now available for less than his purchase price.

Buffett mentioned on Nov. 21, 2011, that “if the price came down on Tesco I’d buy some more of that.” He added in response to the interviewer’s question that companies in the euro space he found attractive had the same things that he looks for in U.S. companies: sustainable competitive advantage, honest and able managements, and selling at a price that makes sense. “If I found a company that’s doing every dime’s or euro’s worth of business in Europe and I liked the business and liked the valuation, I’d buy a lot of it,” he said.

Tesco’s revenue and earnings per share had been growing for the last five years, but the company faced difficulty in the 2011 holiday quarter. Sales volumes increased 1%, but major price cuts resulted in a like-for-like sales decline of 0.9% in the 13 weeks ended Nov. 26, 2011.

Sanofi-Aventis (SNY) is another Buffett stock trading for less than he paid for it. He has 25,848,838 shares valued at $1.9 billion as of Dec. 31, 2011, or 8% less than his $2.055 billion purchase price. Buffett initiated a position in the stock in early 2006.

Sanofi-Aventis is the world’s fourth-largest pharmaceutical company by prescription sales and is based in Paris, France. It has had strong and for the most part growing revenues and cash flow since 2002, and most recently pulled in $42.5 billion in revenue and record free cash flow of $11 billion.

Buffett said at least part of what he thinks about Sanofi in a letter Berkshire sent to the SEC dated Jan. 11, 2011: "Sanofi-Aventis, a large global pharmaceutical company, reported strong earnings in recent periods. Its earnings per share in 2009 increased about 18% versus 2008 and for the first nine months of 2010, earnings per share increased about 9% over the same period in 2009. Berkshire believes that Sanofi-Aventis possesses a significant economic franchise and potential for continued growth in earnings and earnings per share. Berkshire does not believe there are significant negative considerations that are unique to Sanofi-Aventis."

There is at least one negative event on its horizon – 2012 is the year that its blockbuster drugs Plavix and Avapro will be allowed to be sold in generic form. To balance this out it will be expecting a full year of its acquisition Genzyme, will be very disciplined on costs, and implemented another €2 billion cost reduction programme. Combined, these should result in a decline in business earnings per share of between 12 and 15% for 2012.

CEO of Aventis Chris Viehbacher commented on the upcoming challenges in an interview on 2011’s results, “I’m completely confident in our ability to continue to grow back the business and really, I think, present one of the best growth pictures in our industry. We’ll have one of the lowest exposures to patent expiry coming from that. So it’ll be a challenging 2012, but most of us in management are now focused on growth post the patent cliff period.”

Buffett’s fortunes with Chinese car manufacturing company BYD changed considerably in the last two years. His 2010 annual report showed that he owned 225,000,000 shares, or 9.9% of the company, for which paid $232 million, and which at that point was worth $1.2 billion. Then, the value of the holding shrunk so much that it did not appear in his 2011 letter (Buffett only lists his common stocks with a yearend market value of more than $1 billion).

Buffett, who places great importance on quality of management as part of his investment criteria was impressed with BYD founder Wang Chuan-Fu. When Buffett opened the position in 2009, his partner Charlie Munber told Fortune, “This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it."

Despite the caliber of management, BYD has faced some difficulties that dragged down its share price. In February it announced a 44% decline in profit which resulted from lower solar power product prices and intense competition from other auto makers that forced the company to offer sharp discounts, though sales volume increased slightly. Net profit for the year ended Dec. 31, 2011, was 1.40 billion yuan, compared to 2.52 billion yuan in 2010, and revenue increased 1.2% to 49 billion yuan from 48.5 billion yuan.

Although the stock fell to about $3 on Friday, Buffett still has a paper profit on the stock as he paid $1.02 per share for his holding.

See Warren Buffett’s portfolio here or check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Warren Buffett.


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