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This newsletter will seek to find companies that
have favorable long term prospects based on what
Buffett and Munger "MIGHT" look for. By no means
are we trying to replicate their current holdings nor
are we trying to predict what they may buy next.
We simply want to try to preemptively find those
companies that Buffett and Munger could be
buying right now.|
By taking the Buffett Munger Screen, GuruFocus will attempt to find the best stock that
(1) Have at least 10 years of
profit and book value growth
Each month we will present up to 2 companies that we feel meet these criteria. These, in our opinion, will provide the very best opportunity for long-term growth.
Remember, that Warren Buffett and Charlie Munger have followed the Ben Graham theory on investing in companies using a "businesslike" approach with some distinct differences.
Namely, Buffett, with the help of Munger, now focuses on the long term prospects of the business extending beyond just the fundamentals into the brand and management of the business. A great brand can withstand poor management, but very seldom does it work in reverse. Therefore, this newsletter will look at the company's business model, history, management, and market in order to find the margin of safety and intrinsic value.
Also, since even good businesses can vanish if they lose their competitive advantage, this report will seek to find those companies that offer the highest current yield. Through this we feel the owner can earn the highest return with the least amount of risk.
Throughout the year, GuruFocus will present up to 2 companies that we feel meet this criteria each month to readers.
March: This month's pick is a stock Berkshire Hathaway has recently been buying; at higher prices. It is the precise opposite of a value trap. Though the stock always appears to be expensive, it becomes a bargain in hindsight. This is caused by sustainable, high return on assets. Though the company has performed very well for many years, its future seems even brighter than its past. |
December: This month's newsletter is about a company that has dominated since the eighties. The company is about ten times larger its nearest direct competitor and yet still has room to grow in this highly fragmented industry. Like Berkshire's famous investment See's candies, this company generates increasing amounts of excess cash as it grows.
November: This month's newsletter is about a company that both Charlie Munger and Warren Buffett have invested in on separate occasions. The company is the low-cost provider in a cyclical industry. Unlike its peers it is consistently profitable. For fundamental reasons the company is likely to remain the low-cost provider for a very long time. Because industry margins are currently depressed, the shares can be bought at a 40% discount to book value.
October: This month's newsletter is about a company that has dominated its industry for more than half a century. The company is almost twice the size of its nearest direct competitor and has a 10% higher gross margin. With the fundamentals unchanged, there is no reason why the company shouldn't dominate its industry for another decade or two. The company trades at a slight discount to a pessimistic estimate of the liquidation value of its assets.
September: According to Charlie Munger, there are businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven't done it. This month's newsletter is about such a company.
August:This month's newsletter is about one of the best-managed conglomerates in the US. Under current management, the stock has handily outperformed the S&P 500 by a wide margin. The stock is easy to value and clearly trades at a significant discount to the value of the underlying assets.
MayThis month's newsletter revisits an idea that was presented a year ago at much higher prices. It is an actual Buffett stock. The company clearly dominates its industry but trades at a single-digit P/E. In fact it seems to trade at a discount to the liquidation value of its assets. An analysis of the fundamentals shows the company has significant and sustainable competitive advantages.
March: Like Aggreko, which was discussed in October, March pick is a well-managed British industrial that outperforms its US peers. The company has quadrupled its earnings since 2004 and has lots of room to grow. The name of the company is synonymous with excellence. Though its past has been satisfactory, the future looks much better. It is a great company at a reasonable price.
February: This month's Newsletter is about a company that is easy to understand. The company is so profitable that management has been able to grow the business at double-digit rates while still generating enough excess cash to reduce its share-count. The company has a rock-solid balance sheet, a five-star predictability rank and shows up on the "Undervalued Predictable" stock screen, the Buffett-Munger screen and the Buffett-Munger model portfolio.
January: Once again, the newsletter discusses a company that is the precise opposite of a value trap. Though the stock appears to be perpetually expensive, it becomes a bargain in hindsight. This is driven by a sustainable, high return on equity. The company has room to grow. Its peers have spent all their cash on acquisitions. They are trying to get better by being much bigger. This company gets bigger by being much better. The company spends its cash buying back stock.
December: This months' newsletter is about a company that has had a tough time lately. Its stock has taken it on the chin and is one of the the worst performers in Buffett's portfolio. An analysis of the fundamentals indicates the company is in very good shape. Its long-term future is likely to be as bright as its past.
October: This month's newsletter pick is about an unregulated electric utility from Scotland. Current management has grown earnings at a 25% CAGR since they took control. In recent years, they've been spending record amounts on capex, preparing the company for further profitable growth. The company never appears to be cheap. It becomes a bargain in hindsight because it is able to generate 25 cents of incremental profit for each dollar of retained earnings.
September: This month's newsletter is about a stock that Buffett has been buying more of in recent years. The company is very well entrenched, dominates its industry, has sustainable competitive advantages and can take share from its less efficient competitors. The company is well managed and is spending lots of money preparing itself for future growth. Somewhat surprisingly, the stock has a p/e of 8.
Aug. This month's newsletter is about a company that has dominated its industry for half a century. The company is almost four times the size of its nearest direct competitor and generates ever increasing amounts of excess cash. With the fundamentals unchanged, there is no reason why the company shouldn't dominate its industry for another decade or two. At seven times owner earnings, the price is right too.
July: This month's pick is from Europe. The company is mentioned in the most recent edition of Security analysis and enjoys consistent double-digit net margins in an industry that, as a whole, loses money. After adding a zero to its per-share earnings since the turn of the century, the fundamentals indicate its future is as bright as its past.
June: This month's newsletter is about a stock Buffett was forced to sell to avoid anti-trust issues. In ten years, the company has doubled its per-share revenue. Thanks to its pricing power and aggressive buyback of shares, the company has also quadrupled its per-share earnings. An analysis of the fundamentals shows the company's only direct competitor is not as well positioned for the future.
May: This month's newsletter is about an actual Buffett stock, Tesco plc. At first glance, the stock seems reasonably priced. An analysis of the fundamentals shows the company has significant competitive advantages. In fact, Tesco plc is so far ahead of the competition that future profitable growth seems not only likely but almost inevitable.
April: This month's Newsletter is about a company that is easy to understand. The company is so profitable that management has been able to grow the business at double-digit rates while still generating enough excess cash to reduce its share-count by 30% over the past decade. In addition, the company has steadily increased its dividend. The company has a rock-solid balance sheet, a five-star predictability rank and shows up on the "Undervalued Predictable" stock screen.
March: This month's Newsletter is about a company from Canada. It turns up on the Buffett-Munger value screen when that country is selected. For fundamental reasons, this superbly managed company is more efficient than its peers. The company's superior efficiency has fueled steady growth since 1947. With a single-digit market share, the company still has lots of room to grow.
Feb: This stock from the Buffett-Munger model portfolio traces its roots back to Bentonville in Arkansas. Like Wal-Mart, the company has been growing organically, profitably and steadily at double digit rates for decades. Unlike Wal-Mart though, the company has a market share of less than one percent. The company has a solid balance sheet and is buying back shares at an alarming rate.
January: This month's Newsletter is about the cheapest company in the Buffett-Munger model portfolio, trading at less than ten times earnings. The stock has been in the portfolio ever since inception 2009. Since then the stock has tripled. The company is superbly managed and has just celebrated five decades of highly profitable double-digit growth.
December: This month's pick has quadrupled earnings each decade since its IPO almost forty years ago. Though the stock always appears to be expensive, it becomes a bargain in hindsight due to its sustained double digit earnings growth. With more cash than debt, this company has a steady 20% return on equity protected by insurmountable barriers to entry.
Nov. 2012: Since the current CEO took the helm in 2005, this company has spent $1.6 billion buying back stock. Amazingly, that is an amount of money equal to its current market capitalization. The return of all this cash to shareholders, has not stopped management from spending record amounts on capital expenditures, investing for future profitable growth.
Oct. 2012: This months Buffett-Munger pick is an indomitable global powerhouse that has been enriching shareholders since it was founded in 1924. In recent years, the company has been spending three times more on growth than its closest competitors while maintaining excellent profitability. This unique franchise trades at six times sustainable owner earnings due to uncertainty regarding the effects of the european debt crisis.
September: This month's pick is the precise opposite of a value trap. The stock always appears to be expensive. In true Buffett style, it becomes a bargain only in hindsight. This is driven by a sustainable, high return on equity. Since 2001, the company has quintupled earnings per share. With the fundamentals unchanged today, the future of this company is likely to resemble its past.
August:This wide moat distributor has grown its sales, earnings, and stock price by 12% a year over the last 10 years. And with the same CEO running the company for the last 23 years, its future will probably look a lot like its past.
July: This super predictable company increased its share price 18% a year over the last 15 years while focusing completely on Economic Value Added. Its goal for the next 10 years? 10% to 15% annual EPS growth.
June: The Buffett/Munger Bargain Newsletter June's pick - averaging 6% a year sales growth - has increased earnings per share by 20% a year. The stock price has followed suit. Since present management took over in 1998, the stock price has compounded at more than 20% a year.
May: May's pick has grown sales 8% a year and EPS 15% a year over the last 10 years. It still has plenty of room to grow. And the business model has shown it can grow earnings and EBITDA much faster than revenue as it scales up.
April: April's pick has achieved a double-digit return on equity in 15 of the last 16 years – without using any debt. It has grown unit sales by 9% a year over the last 20 years. And it still has plenty of room to grow.
March: The Buffett/Munger Bargain Newsletter's March pick is truly a wonderful company selling at a fair price. The company is growing 17% a year and has been profitable for 25 straight years.
Feb. 2012: February's pick is the kind of consistent, wide moat business Warren Buffett would buy if he had a smaller portfolio. It gets 70% of its revenue from foreign sales and spent $2 billion to buy back 30% of its shares over the last 10 years.
Jan. 2012: This month's pick is a stock that Warren Buffett might be interested in investing in. its products that are essential ingredients for food processing companies, chemical producers, fuel companies, and agribusinesses. This stock could make a solid investment.
December: This month's Buffett-Munger pick is a small cap company. The company has carved out a successful business in several niche areas including banking services to religious organizations and expense management services for large privately and publicly owned businesses. This companies unique combination of pro cyclical and counter cyclical business lines make it a steady, if relatively unknown, performer.
November: Worried about another recession or slowing growth in developed markets? Well so is the management of this company, and they've proactively prepared for a slowdown by restructuring the business, targeting cost cutting initiatives, and focusing resources on expanding in to emerging markets. Thanks to recent market volatility this steady performer is available at a discount price.
Oct. 2011: This month the Buffett-Munger newsletter highlights a company Buffett himself mentioned he might be interested in buying. The company has all the things Buffett looks for. It has a great balance sheet. The company has a shown a steady history of increasing sales, earnings, and free cash flow. Also the company regularly returns cash to shareholders through share buybacks and a generous dividend payment. Finally, it has one quality ever value investor looks for: it's cheap, trading at a single digit P/E.
September: This month's pick is owned by over 30 guru's tracked by GuruFocus including Seth Klarman who recently devoted over 12% of his portfolio to this company. This company generates tremendous amounts of cash, pays an above average dividend, and has shown strong growth throughout the decade. Considering such heavy guru ownership we believe this stock represents the best buy in the current Buffett-Munger screener. Despite the business' stellar operating results it remains one of the most hated stocks in the market.