As the market tries to recover from one of the worst weeks since the 2008 financial crisis, five stocks meeting Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)’s four-criterion investing approach are Norwegian Cruise Line Holdings Inc. (NCLH, Financial), Lithia Motors Inc. (LAD, Financial), Group 1 Automotive Inc. (GPI, Financial), Asbury Automotive Group Inc. (ABG, Financial) and Sleep Number Corp. (SNBR, Financial).
Dow caps off wild week at its low
On Friday, the Dow Jones Industrial Average closed at 19,173.43, down 913.76 points from Thursday’s close of 20,087.19 and 725.49 points from Wednesday’s close of 19,898.92. Friday’s close capped a week that saw that Dow start with a 3,000-point loss and then sink below 20,000 for the first time since January 2017, the month Donald Trump was sworn in as President of the United States.
Fears of the coronavirus outbreak slowing down the economy have sent the Dow down nearly 17% for the week, close to the 18.2% tumble during one week in October 2008. According to CNBC, IndexIQ Chief Investment Officer Sal Bruno said that the markets are “trading more on emotion than the actual data,” driving up volatility. Bruno’s comments are close to Soros Fund Management leader George Soros (Trades, Portfolio)’ theory of reflexivity, where buyers and sellers often act out of highly emotional reactions than coolly logical calculations.
As such, investors might find opportunities among stocks that meet Buffett and Munger’s four-criterion investing approach, which seeks companies with an understandable business, favorable long-term prospects, competent management and attractive share prices. Apple Inc. (AAPL, Financial), the top holding of Berkshire, has a 4.5-star business predictability rank, one of Buffett’s key investing criteria.
Norwegian
Shares of Norwegian closed at $8.72, reflecting a price-earnings-to-growth ratio of approximately 0.11.
Cruise companies like Norwegian and competitors like Carnival Corp. (CCL, Financial) and Royal Caribbean Cruises Ltd. (RCL, Financial) have seen their stock prices tumble during March as cruise operators suspend cruises over the next several months due to the coronavirus.
GuruFocus ranks Norwegian’s profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank, expanding operating margins and a return on equity that outperforms 81.72% of global competitors.
Gurus with large holdings in Norwegian include PRIMECAP Management (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Lithia Motors
Shares of Lithia Motors closed at $65.70, reflecting a price-earnings-to-growth ratio of approximately 0.29.
The Medford, Oregon-based company retails new and used vehicles and related services. GuruFocus ranks the company’s profitability 8 out of 10 on several positive investing signs, which include a five-star business predictability rank and a return on equity that outperforms 91.58% of global competitors.
GuruFocus ranks Lithia Motors’ valuation 9 out of 10 on several signs of undervaluation, which include a price-earnings ratio near a 10-year low and a price-sales ratio and price-book ratio both near a five-year low.
Seth Klarman (Trades, Portfolio) protégé David Abrams (Trades, Portfolio) has one of the largest holdings in Lithia Motors.
Group 1 Automotive
Shares of Group 1 Automotive closed at $41.75, reflecting a price-earnings-to-growth ratio of 0.32.
Group 1 Automotive owns and operates over 185 automotive dealerships in the U.S., U.K. and Brazil. GuruFocus ranks the Houston-based company’s profitability 8 out of 10 on several positive investing signs, which include a five-star business predictability rank, a high Piotroski F-score of 8 and a return on equity that outperforms 82.27% of global competitors.
Group 1 Automotive’s valuation ranks 10 out of 10 on the heels of price valuations near a 10-year low and outperform over 85% of global competitors.
Ashbury
Shares of Ashbury closed at $50.60, reflecting a price-earnings-to-growth ratio of 0.37.
The Duluth, Georgia-based company operates approximately 100 stores with associated parts and services departments. GuruFocus ranks Ashbury’s profitability 9 out of 10 on several positive investing signs, which include expanding operating margins and a high Piotroski F-score of 7.
Sleep Number
Shares of Sleep Number closed at $23.74, reflecting a price-earnings-to-growth ratio of 0.50.
The Minneapolis-based company offers individualized sleep solutions and services, with products ranging from beds and furniture to pillows. GuruFocus ranks Sleep Number’s profitability and valuation 9 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7, a 4.5-star business predictability rank and price valuations close to multiyear lows.
Updated disclosure: The author is long Norwegian. (April 6)
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