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James Li
James Li
Articles (1398)  | Author's Website |

4 Buffett-Munger Stocks Ahead of Buffett's 90th Birthday

Good companies with PEG ratios less than 1

In light of Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio) celebrating his 90th birthday on Sunday, four stocks that have a price-earnings-to-growth ratio less than 1 are AmerisourceBergen Corp. (NYSE:ABC), Group 1 Automotive Inc. (NYSE:GPI), Asbury Automotive Group Inc. (NYSE:ABG) and Sleep Number Corp. (NASDAQ:SNBR) according to the Buffett-Munger Screener, one of several value screens offered to GuruFocus Premium members.

Buffett's favorite market indicator tops 180% ahead of his 90th birthday

Buffett's favorite market indicator, which captures the ratio of the Wilshire 5000 full-cap market index to the U.S. gross domestic product, stood near 184% on Friday, close to an all-time high. While the Wilshire 5000 climbed to over $35.6 trillion, gross domestic product of approximately $19.41 trillion reflects an annual rate decline of 31.7% for the second quarter according to a second estimate released by the Bureau of Economic Analysis. The new estimate is slightly better than the annual rate decline of 32.9% according to advanced estimates issued in July.


The Dow Jones Industrial Average closed at 28,653.87, up 161.60 points from Thursday's close of 28,492.27. Apple Inc. (NASDAQ:AAPL), the top holding of Berkshire, closed at $499.23 on its final trading day prior to its four-for-one stock split, down slightly from the previous close of $500.04.


Buffett-Munger Screen seeks good companies at fair prices

Buffett and co-manager Charlie Munger (Trades, Portfolio) said that they seek four key criteria when seeking investments: understandable businesses, favorable long-term prospects, honest and competent management and attractive share prices. To qualify for the Buffett-Munger Screener, a company must have high business predictability, strong competitive advantages, no meaningful debt when growing businesses and low valuations. For the valuation criterion, GuruFocus considers the price-earnings-to-growth ratio, which captures the ratio of price-earnings to the five-year earnings growth rate.


Legendary investor Peter Lynch, who managed the Fidelity Magellan Fund during the 1980s, believes that the fair price-earnings ratio for growth companies equals its growth rate, i.e., the price-earnings-to-growth ratio is 1. A PEG ratio less than 1 means that the price-earnings ratio is less than the growth rate, suggesting undervaluation. GuruFocus requires a PEG ratio less than 2 for the Buffett-Munger Screener.


Shares of AmerisourceBergen closed at $97.55, yielding a PEG ratio of approximately 0.65. The stock's PEG valuation outperforms 90.32% of global competitors.


AmerisourceBergen engages in wholesale sourcing and distribution of specialty, brand-name and generic pharmaceutical products to hospitals, medical clinics and retail pharmacies. GuruFocus ranks the Chesterbrook, Pennsylvania-based company's profitability 8 out of 10 on several positive investing signs, which include expanding operating margins, a four-star business predictability rank, a high Piotroski F-score of 8 and a return on equity that outperforms 96.92% of global medical distribution competitors.


Gurus with large holdings in AmerisourceBergen include Pioneer Investments (Trades, Portfolio), Larry Robbins (Trades, Portfolio)' Glenview Capital Management and Seth Klarman (Trades, Portfolio)'s Baupost Group.


Group 1 Automotive

Shares of Group 1 closed at $91.82, yielding a PEG ratio of approximately 0.78. Group 1's PEG valuation outperforms 77.97% of global competitors.


The Houston-based company owns and operates over 185 automotive dealerships, 242 franchises and 49 collision service centers in the U.S., the U.K. and Brazil. GuruFocus ranks the company's profitability and valuation 8 out of 10 on several positive investing signs, which include a five-star business predictability rank, a price-earnings ratio that outperforms 75.81% of global competitors and a price-sales ratio that outperforms 89.44% of global companies specializing in vehicles and parts.


Asbury Automotive

Shares of Asbury Automotive closed at $108, yielding a PEG ratio of approximately 0.91. The company's PEG valuation outperforms over 75% of global competitors.


GuruFocus ranks the Duluth, Georgia-based auto dealership company's profitability 8 out of 10 on several positive investing signs, which include expanding operating margins, a five-star business predictability rank and a return on equity that outperforms 95.84% of global competitors.


Sleep Number

Shares of Sleep Number closed at $49.18, yielding a PEG ratio of approximately 0.94. Sleep Number's PEG valuation outperforms 69.63% of global competitors.


GuruFocus ranks the Minneapolis-based sleep solutions company's profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a return on assets that outperforms 81.47% of global competitors and three-year revenue and earnings growth rates that outperform over 85% of global furnishings, fixtures and appliances companies.


Disclosure: Long Apple.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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