Warren Buffet is at it again! He obviously feels that there is still value in the market as he buys...
1) United Health Group ( UNH )
2) U.S. Bancorp (USB, Financial)
I’m a big fan of Warren and his approach to investing. Not many people in the world have his ability to value businesses and no one has his track record, but why did he pick these two companies?
(1) They both have a great brand. USB is the nation's 6th largest bank and UnitedHealth Group serves about 70 million Americans. I would say that is a pretty dominant brand.
The interesting thing here is that they’re both in Minnesota ... Buffett must like the state.
(2) Their financial history has shown that the management is top notch!
Both companies have high Returns on Equity (which is one of Buffett's top priorities in business evaluation) and they have done a great job of increasing both their net worth and their earnings each year for the last decade.
If you look further you'll see that both companies have also bought back their own stock. If they continue this trend, not only will the earnings increase the value for Buffett, but so will the affect of having fewer shares outstanding. That's why its so important for him to buy companies that are consistent.
(3) The price was right! After all the business evaluation, no matter how great a company is, if the stock is bought at the wrong time, it will only gain mediocre returns for the owner.
Buffett is known for buying undervalued companies. Unfortunately, the days where he can buy $100 Million companies and have it really affect his annual returns is OVER! Therefore, he has to make big purchases in companies like UnitedHealth and U.S. Bancorp even if their returns will only be slightly above average.
When Warren bought UNH it had a price to sales ratio under 1, which means the company’s sales outpaced its market valuation. *Always a good starting point. Next Warren likes to find out the initial rate of return or how much he would earn if he bought the entire company...
Both UNH & USB provide at least 6% initial return rates, which if you trace some of Buffett’s recent purchases seems to be right in line. Anheuser-Busch and Wal-Mart were also providing a 6% IRR.
Will these companies help produce the stellar returns Warren and Berkshire want and need? Only time will tell, but remember that even he admits that his growth will not keep the same record going forward.
1) United Health Group ( UNH )
2) U.S. Bancorp (USB, Financial)
I’m a big fan of Warren and his approach to investing. Not many people in the world have his ability to value businesses and no one has his track record, but why did he pick these two companies?
(1) They both have a great brand. USB is the nation's 6th largest bank and UnitedHealth Group serves about 70 million Americans. I would say that is a pretty dominant brand.
The interesting thing here is that they’re both in Minnesota ... Buffett must like the state.
(2) Their financial history has shown that the management is top notch!
Both companies have high Returns on Equity (which is one of Buffett's top priorities in business evaluation) and they have done a great job of increasing both their net worth and their earnings each year for the last decade.
If you look further you'll see that both companies have also bought back their own stock. If they continue this trend, not only will the earnings increase the value for Buffett, but so will the affect of having fewer shares outstanding. That's why its so important for him to buy companies that are consistent.
(3) The price was right! After all the business evaluation, no matter how great a company is, if the stock is bought at the wrong time, it will only gain mediocre returns for the owner.
Buffett is known for buying undervalued companies. Unfortunately, the days where he can buy $100 Million companies and have it really affect his annual returns is OVER! Therefore, he has to make big purchases in companies like UnitedHealth and U.S. Bancorp even if their returns will only be slightly above average.
When Warren bought UNH it had a price to sales ratio under 1, which means the company’s sales outpaced its market valuation. *Always a good starting point. Next Warren likes to find out the initial rate of return or how much he would earn if he bought the entire company...
Both UNH & USB provide at least 6% initial return rates, which if you trace some of Buffett’s recent purchases seems to be right in line. Anheuser-Busch and Wal-Mart were also providing a 6% IRR.
Will these companies help produce the stellar returns Warren and Berkshire want and need? Only time will tell, but remember that even he admits that his growth will not keep the same record going forward.
