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4 Warren Buffett Holdings Trading at Low Price-to-Free Cash Flow Ratios

Stocks with high profitability and low valuations owned by Berkshire Hathaway

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Jun 16, 2021
Summary
  • Peter Lynch set his earnings line at 15 times earnings per share.
  • Investors can find opportunities in stocks meeting Buffett’s key criteria.
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According to the All-in-One Screener, a Premium feature of GuruFocus, four stocks in Berkshire Hathaway Inc.’s (

BRK.A, Financial)(BRK.B, Financial) equity portfolio that have high profitability and are trading at attractive price-to-free cash flow ratios are AbbVie Inc. (ABBV, Financial), The Kroger Co. (KR, Financial), DaVita Inc. (DVA, Financial) and Globe Life Inc. (GL, Financial).

Legendary investor Peter Lynch said that one can compare a stock’s price to an earnings line at 15 times earnings per share to determine if a stock is undervalued or overvalued. Likewise, Berkshire CEO

Warren Buffett (Trades, Portfolio) listed four key criteria for “good companies at fair prices”: understandable business, favorable growth prospects, shareholder-oriented management and attractive valuations.

GuruFocus’ “Peter Lynch &

Warren Buffett (Trades, Portfolio)” screener lists the stocks in Buffett’s portfolio that have high profitability and business predictability and are trading below the Peter Lynch earnings line. Because Lynch warned that the price-earnings ratio may give misleading valuations for cyclical companies, the following article will consider stocks trading at price-to-free cash flow ratios less than 15.

AbbVie

Shares of AbbVie (

ABBV, Financial) traded around $115.24, approximately 11.36 times its free cash flow per share. The stock is fairly valued based on Wednesday’s price-to-GF Value ratio of 0.98.

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GuruFocus ranks the North Chicago, Illinois-based drug manufacturer’s profitability 8 out of 10 on several positive investing signs, which include operating margins and returns on equity outperforming more than 90% of global competitors despite three-year revenue growth rates topping just over 76% of global drug manufacturers.

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Berkshire owns 22,868,178 shares of AbbVie as of the March-quarter portfolio filing.

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Other gurus with holdings in AbbVie include Pioneer Investments (Trades, Portfolio) and the

T Rowe Price Equity Income Fund (Trades, Portfolio).

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Kroger

Shares of Kroger (

KR, Financial) traded around $37.45, approximately 7.47 times its free cash flow per share. Despite this, the stock is modestly overvalued based on Wednesday’s price-to-GF Value ratio of 1.15.

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GuruFocus ranks the Cincinnati-based grocery chain’s profitability 8 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, a high Piotroski F-score of 8 and a return on equity that outperforms more than 86% of global competitors.

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Berkshire owns 51,060,296 shares of Kroger as of March.

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Jim Simons (Trades, Portfolio)’ Renaissance Technologies also has a holding in Kroger.

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DaVita

Shares of DaVita (

DVA, Financial) traded around $122.50, approximately 13.47 times its free cash flow per share. The stock is modestly overvalued based on Wednesday’s price-to-GF Value ratio of 1.21.

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GuruFocus ranks the Denver-based kidney dialysis provider’s profitability 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 an operating margin that outperforms over 83% of global competitors.

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Berkshire owns 36,095,570 shares of DaVita as of March 31.

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Globe Life

Shares of Globe Life (

GL, Financial) traded around $103.26, approximately 7.53 times its free cash flow per share. The stock is fairly valued based on Wednesday’s price-to-GF Value ratio of 0.98.

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GuruFocus ranks the McKinney, Texas-based insurance company’s profitability 7 out of 10 on several positive investing signs, which include a five-star business predictability rank and net profit margins and three-year revenue and earnings growth rates outperforming more than 65% of global competitors.

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Berkshire owns 6,353,727 shares of Globe Life as of March 31.

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I am/ we are currently short the stocks mentioned. Click for the complete disclosure
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