1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Steven Chen
Steven Chen
Articles (206)  | Author's Website |

Berkshire's Unnoticed and Self-Beating Holdings

These high-quality names from Warren Buffett's stock portfolio have significantly outperformed Berkshire as a whole

For decades, Warren Buffett (Trades, Portfolio) has been well known for his “forever” love for companies like Coca Cola (NYSE:KO), American Express (NYSE:AXP) and Wells Fargo (NYSE:WFC), which drove the long-term outperformance at Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B).

However, checking the company’s complete portfolio of over 50 stocks, one may notice quite a few quality names that have received less recognition in association with the legendary investor and his value-investing vehicle. Even though all of these companies were selected by Buffett and his in-house money managers, Ted Weschler and Todd Combs, some of them did not even show up much in Berkshire’s annual reports or Buffett’s annual letters to shareholders.

Below, we have put together a list of Berkshire’s relatively unnoticed stock picks that look interesting to us for having been outperforming the stock of Berkshire Hathaway over the last decade. 

MasterCard and Visa

New York-based MasterCard (NYSE:MA) and California-based Visa (NYSE:V) are the two leading players of the four-company oligopoly of payment processing outside of China. The companies are also the only two “pure plays” in the space. Together, they are currently dominating more than 80% of the penetrated market based on the number of cards in circulation, while looking at a huge growth potential ahead due to the ongoing “war on cash.”

MasterCard and Visa generate 65% and 42% returns on equity capital, respectively, at the moment. Both businesses tend to retain 80% of annual profits to reinvest.

For the past ten years, the shares of MasterCard and Visa went up more around nine-fold and seven-fold, respectively, compared to the 122% gain of Berkshire A shares.

VeriSign

Virginia-based VeriSign (NASDAQ:VRSN) is thought of as the toll bridge of the Internet. The company provides domain name registry services and related infrastructure, enabling Internet navigation for many of the world’s most recognized domain names.

Verisign digs itself a wide economic moat, being the exclusive registry for .com and .net, among a few other domain name extensions that it can charge annual registration fees for. The business is currently earning a more than 30% return on assets and typically retains all earnings. The yearly free cash flow increased more than five-fold over the last decade, and the stock price went up almost seven-fold in the meantime.

Costco Wholesale

Washington-based Costco (NASDAQ:COST) is the world’s third-largest retailer, which operates an international chain of membership warehouses aiming to offer quality bulk merchandise at lower prices. The business serves over 55 million households, leveraging its highly sticky club model (an over 90% renewal rate in the U.S. and Canada).

The company generates a 25% annual return on equity and reinvests 70% of its net profits to grow shareholder value. Costco shares gained 372% over the last decade, beating Berkshire by a wide margin.

Biogen

Massachusetts-based Biogen (NASDAQ:BIIB) is the global leader in therapies for the treatment of neurological diseases. However, it is important to note that this biotech multinational was only recently added to Berkshire’s portfolio in the fourth quarter of 2019. Although going through a bumpy ride, the share managed to gain almost 500% over the last ten years.

As with VeriSign, Biogen does not pay a dividend, meaning that it retains all of its net income and hopefully reinvests it at a high rate. The business is currently generating a return of 45% on equity capital.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Berkshire Hathaway and MasterCard.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Steven Chen
Steven CHEN is a quality-focused, business-perspective investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected], LinkedIn, or WeChat (ID: LSCHEN2005).

Also, check out his column at Smartkarma on the Asian market - www.smartkarma.com/profiles/steven-chen

Visit Steven Chen's Website


Rating: 4.7/5 (6 votes)

Voters:

Comments

scomas
Scomas premium member - 7 months ago

The Biogen returns are slightly misleading since the companny has provided negative returns for the past 5 years for investors. Most of the gains happened prior to 2015, and as you mention, no dividend was paid out. In addition, the space is heating up as more Pharma companies enter back inro neurological drug manufacturing. I personally don't think Biogen will perform particularly well in the future as is the case with other pharma companies. One problem with pharma is that you are buying a lottery ticket, hoping some drugs get approved. I was a bit confused as to why WB even purchased the shares to begin with.

Steven CHEN
Steven CHEN - 7 months ago    Report SPAM

Thanks for the comment. I agree with the lottery ticket metaphor with regards to pharma industry in general.

Please leave your comment:



Performances of the stocks mentioned by Steven Chen


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)