Warren Buffett (Trades, Portfolio) is widely regarded as one of the greatest investors ever. Naturally, with this accolade behind him, investors try and copy his investment portfolio in the hope of replicating his performance. However, unlike other fund managers, Buffett’s holdings change rarely, and his top holdings have been a part of the Berkshire (BRK.A, Financial)(BRK.B) portfolio for decades.
What’s more, it is unclear if Buffett would buy the same holdings today based on their current valuations. Buffett is, at heart, a value investor and therefore he is unlikely to be willing to pay premium multiples to buy equities unless there is a guarantee that he will receive a higher return on his money as there was with Heinz (KHC, Financial).
Still, some Buffett stocks look appealing in today’s environment. Below are Buffett’s 10 largest equity holdings and their valuation metrics. Some companies are a lot cheaper than others, and two companies stand out as being cheap on a price-earnings (P/E) basis.
Buffett bargains
| Ticker | Name | P/E Rolling 1y | P/S | P/FCF | P/B | P/TB | Ă‚ | PEG Rolling | Yield % | Earnings Yield % | EV/ EBITDA |
| AXP | American Express Co. | 11.9 | 1.85 | 9.66 | 2.92 | 2.92 | Ă‚ | - | 1.78 | 5.24 | 16.9 |
| KO | Coca-Cola Co. | 21.4 | 4.31 | 28.5 | 7.02 | 47.8 | Ă‚ | 3.85 | 3.25 | 4.29 | 19.3 |
| DVA | DaVita Inc. | 14.9 | 0.78 | 10.4 | 2.32 | - | Ă‚ | 2.9 | - | 8.72 | 8.26 |
| IBM | International Business Machines | 11.2 | 1.85 | 10.2 | 8.7 | - | Ă‚ | 4.54 | 3.47 | 6.16 | 11.1 |
| KHC | Kraft Heinz Co. | 22.6 | 3.91 | 30.2 | 1.82 | - | Ă‚ | 0.8 | 3.37 | 4.37 | 18.6 |
| MCO | Moody's | 19.6 | 5.4 | 18.9 | - | - | Ă‚ | 2.67 | 1.83 | 7.01 | 13.1 |
| PSX | Phillips 66 | 15.5 | 0.49 | - | 1.82 | 2.22 | Ă‚ | 0.64 | 2.98 | 7.17 | 10.5 |
| USB | U.S. Bancorp | 13.3 | 3.66 | 13.2 | 1.81 | 2.54 | Ă‚ | 2.98 | 2.33 | 7.21 | 236.3 |
| WMT | Wal Mart Stores Inc. | 16 | 0.45 | 10.2 | 2.82 | 3.59 | Ă‚ | - | 2.84 | 9.21 | 7.71 |
| WFC | Wells Fargo & Co. | 11.2 | 2.58 | - | 1.28 | 1.66 | Ă‚ | 25.8 | 3.33 | 5.33 | 136.7 |
If you go on a P/E basis alone, the two most appealing companies in Buffett’s portfolio are IBM (IBM, Financial) and Wells Fargo (WFC, Financial). These two companies have problems, which is why the market is placing a low valuation on these industry heavyweights. Nonetheless, as value investments, they could still have some merit. Wells Fargo is one of the largest banks in the U.S. by assets, and IBM is a global leader in the provision of IT services and solutions. If you want to follow Buffett’s strategy of buying out-of-favor stocks at appealing prices, these two companies are probably some of the best candidates around.
But IBM and Wells Fargo aren’t the only attractive stocks in Buffett’s portfolio today. Walmart (WMT, Financial) looks cheap per the EV/EBITDA ratio. The firm is the cheapest in Buffett’s portfolio on an EV/EBITDA basis, and the stock also has the highest earnings yield and price-sales (P/S) ratio of the group. When it comes to dividend income, four of Buffett’s top 10 equity holdings currently support a dividend yield over 3%. IBM, Kraft Heinz, Coca-Cola (KO, Financial) and Wells Fargo all yield more than 3% so dividend hunters have several options if they want to replicate Buffett’s dividend portfolio.
Price-book (P/B) is probably the most famous ratio value investors will consider. Unfortunately, no stock in Buffett’s top 10 holdings currently trades below book value per share. Wells Fargo comes the closest, trading at a P/B ratio of 1.3, but as the company is a bank it's hard to say whether this book value is accurate as the value of assets on a bank’s balance sheet can change quickly. Phillips 66 (PSX, Financial) is the cheapest stock on a P/B basis and price-to-tangible-book basis, excluding financial stocks.
Conclusion
Overall, if you’re looking to replicate Buffett’s investment strategy, there are some stocks in his portfolio that are still trading at attractive valuation multiples. Some of these companies may have problems, but if you invest like Buffett and look to the long term these problems are more than likely to work themselves out.
Disclosure: The author owns shares in IBM.
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