GuruFocus’ All-in-One Screener offers more than 150 filters to sort stocks for investment opportunities. One important feature is predefined screens to help investors get a jump-start.
The Peter Lynch + Warren Buffett (Trades, Portfolio) screen found in the drop-down menu under “GuruFocus Screens” returns a list of stocks in Berkshire’s portfolio that are also undervalued according to former Fidelity Magellan fund manager Peter Lynch’s earnings line.
In his bestselling book “One Up on Wall Street,” Lynch equated $1 of a company’s earnings with $15 in stock price. Comparing this earnings line with the price of a stock could serve as one way of determining whether a company is over or undervalued.
The following are five of the stocks from the Peter Lynch + Warren Buffett (Trades, Portfolio) screen.
U.S. Bancorp is a multi-state financial services holding company headquartered in Minneapolis. Over the past year, the stock has declined 8% and is trading at 13x earnings. GuruFocus rates its profitability and growth as 7 out of 10, and the company may be undervalued according to the Peter Lynch earnings line, which points at $47.50.
For fiscal 2015, US Bancorp reported EPS of $3.16, up from $3.00 the year before. Over the past five years, earnings have grown at an average annual rate of more than 10%.
The dividend yield is close to the five-year high at 2.48%, and the payout ratio is 32%. Warren Buffett (Trades, Portfolio) is the largest guru shareholder with almost 5% of shares outstanding, and the stock comprises 2.75% of his portfolio.
Torchmark Corp. (TMK, Financial)
Torchmark is a holding company for a group of insurance companies that provide individual life and supplemental health insurance in the U.S. The stock held steady over the past year and trades at 13.29x earnings. The Peter Lynch earnings line indicates Torchmark is undervalued, with the line at $62.50.
EPS has increased steadily over time, as the company posted $4.16 in EPS for fiscal 2015, up from $4.09 the prior year. Torchmark pays a trailing dividend yield of 0.97% with a payout ratio of 13%. Warren Buffett (Trades, Portfolio) holds 5.24% of shares outstanding, or about 6.3 million shares.
IBM has been one of Buffett’s most interesting holdings, as the stock slid to a lower price than when Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) began building its holding. Over the past year, the stock traded down by 10% and currently trades at just 11x earnings.
Two days after releasing his 2015 annual shareholder letter, Buffett spoke with CNBC Squawk Box and said he had never sold a share of IBM.
"What you pay for a stock doesn't mean anything. What means something is where the company's going to be in five to 10 years," Buffett said. "I think IBM will be worth more money but, like I said, I could be wrong but we'll accept that."
Goldman Sachs Group Inc. (GS, Financial)
Goldman Sachs’ stock has dropped 20% over the last year and trades at 12.79x earnings. The Peter Lynch earnings line estimates a fair value of $181, indicating the stock may be undervalued.
Buffett invested $5 billion in Goldman Sachs in 2008 during the dark days of the financial crisis. He received a preferred holding and warrants to buy $5 billion in stock for $115 per share. Berkshire would have five years to exercise the warrants, and will be paid a 10% dividend. Goldman then bought back the stock in 2011 for $5.5 billion, 10% more than what Berkshire paid.
In a revised deal in 2013, Berkshire would not have to pay the $5 billion to buy the shares it had a right to purchase, which would have been worth $6.4 billion at the time. Goldman instead gave Buffett the difference in the stock at the time of the deal, giving him a $3.2 billion profit over four and a half years.
Bank of New York Mellon Corp. (BK, Financial)
Bank of New York Mellon trades at 13.89x earnings after declining about 6% over the past year. The stock is slightly undervalued according to the Peter Lynch earnings line.
For the fourth quarter 2015, Bank of New York Mellon reported EPS of 57 cents, a vast improvement from 18 cents in the prior year quarter. EPS for the whole year was $2.71 compared to $2.15 in 2014.
Buffett purchased a $52 million stake in the bank during the third quarter 2010. He trimmed the holding gradually in multiple quarters since the third quarter 2013. Berkshire currently owns more than 20 million shares, or 1.87% of shares outstanding.
Dodge & Cox is the largest guru shareholder with a 5.05% stake, followed by First Eagle Investment (Trades, Portfolio) and Chris Davis (Trades, Portfolio) with a little over 2% stake each.
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