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James Li
James Li
Articles (860)  | Author's Website |

5 Buffett-Munger Stocks for Summer 2019

Consider these predictable companies with low PEG ratios as the US market sets new all-time highs

As the U.S. stock market sets new all-time highs, several GuruFocus model portfolios continue outperforming the benchmark: the undervalued-predictable portfolio, the Buffett-Munger portfolio and the most-broadly held portfolio. As of Friday, five Buffett-Munger stocks with price-earnings to growth ratios below 0.77 are Alliance Data Systems Corp. (NYSE:ADS), Miller Industries Inc. (NYSE:MLR), Southwest Airlines Co. (NYSE:LUV), Encore Capital Group Inc. (ECPG) and NVR Inc. (NVR).

Dow and S&P 500 set all-time highs

The Dow Jones Industrial Average closed at 27,332.03, up 243.95 points from Thursday’s close of 27,088.08. Likewise, the Standard & Poor’s 500 index closed at 3,011.09, up 11.18 from Thursday’s close of 2,999.91. Both indexes closed at new all-time highs; further, the Dow closed above 27,000 for the first time in history on Thursday, while the S&P 500 closed above 3,000 for the first time in history on Friday.

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CNBC columnist Fred Imbert said markets soared as investors “piled into stocks” amid expectations that the Federal Reserve will cut interest rates later this month.

Alliance Data Systems

With a price-earnings-to-growth ratio of 0.48, Alliance Data Systems ranks number one on the list of Buffett-Munger stocks. The company’s business predictability ranks five stars on strong and consistent revenue and earnings growth over the past 10 years.

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The Plano, Texas-based company provides marketing, loyalty program and private-label credit card services. Alliance Data Systems’ profitability ranks 9 out of 10 on the heels of its five-star business predictability rank and 43.17% return on equity, which outperforms 94.79% of global competitors. Despite this, the company’s financial strength ranks a poor 4.5 out of 10 on a few weak signs, including an Altman Z-score that suggests possible financial distress and a debt-to-equity ratio of 5.80, a ratio that underperforms 87.01% of global credit services companies.

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Gurus with large holdings in Alliance Data include Jeff Ubben (Trades, Portfolio)’s ValueAct Holdings LP and Glenn Greenberg (Trades, Portfolio).

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Miller Industries

Miller Industries ranks second on the list of stocks meeting Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) co-managers Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio)’s investing strategy. The company’s price-earnings-to-growth ratio is 0.50, i.e., the company’s price-earnings ratio is approximately one-half of its five-year Ebitda growth rate.

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The Ooltewah, Tennessee-based company manufactures towing and recovery equipment through brands like Century, Vulcan, Challenger, Holmes and Champion. GuruFocus ranks the company’s financial strength 7.3 out of 10 on several strong signs, which include solid interest coverage of 22.27 and Altman Z-score of 4.32. Even though the company’s profit margins are outperforming just 51% of global competitors, the company’s profitability still ranks 8 out of 10 on the heels of a 4.5-star predictability rank and a 9.89% return on assets, which outperforms 82.03% of global competitors.

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2019 GuruFocus Value Conference keynote speaker Chuck Royce (Trades, Portfolio) has the largest position in Miller with 1,295,784 shares.

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Southwest

Berkshire airline holding Southwest ranks third on the Buffett-Munger list with a price-earnings-to-growth ratio of 0.59.

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The Dallas-based airline operates short-haul flights using a point-to-point network. GuruFocus ranks Southwest’s profitability 8 out of 10: Even though the company’s three-year revenue growth rate of 3.50% outperforms just 51.67% of global competitors, its business predictability ranks five stars on strong and consistent revenue and earnings growth over the past 10 years. Additionally, operating margins have increased approximately 11.30% per year on average over the past five years and are outperforming 86% of global airlines.

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Berkshire has not released its second-quarter portfolio as the deadline is 45 days after quarter-end. As of the March quarter, Buffett’s conglomerate owns 53,649,213 shares of Southwest.

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Encore Capital

With a price-earnings-to-growth ratio of 0.68, Encore Capital ranks fourth on the Buffett-Munger list.

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The San Diego-based company purchases consumer debt from banks, credit unions and utility providers. GuruFocus ranks Encore’s profitability 9 out of 10 on several positive signs, which include a five-star business predictability rank and a strong Piotroski F-score of 7. Despite this, the website lists red flags like operating loss and increasing long-term debt over the past three years. Additionally, net profit margins are underperforming 81% of global competitors.

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NVR

With a price-earnings-to-growth ratio of 0.76, NVR ranks fifth on the Buffett-Munger list.

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The Reston, Virginia-based company builds single-family detached homes, town homes and condos primarily in 14 states east of the Mississippi River. GuruFocus ranks NVR’s profitability 9 out of 10 on several positive indicators, which include a four-star business predictability rank, a strong Piotroski F-score of 8 and profit margins that are outperforming approximately 80% of global competitors.

See also

Other stocks that made the Buffett-Munger screener include Old Dominion Freight Lines Inc. (NASDAQ:ODFL), Ulta Beauty Inc. (NASDAQ:ULTA) and Gentex Corp. (NASDAQ:GNTX).

Premium members of GuruFocus can access a wide variety of value screens, including the Aggregated Portfolio of Gurus, the Undervalued-Predictable Screener, the Buffett-Munger Screener and the Historical Low Price-Sales Screener.

Disclosure: Long Alliance Data Systems, Miller Industries, Southwest, Ulta Beauty and Gentex.

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About the author:

James Li
I am an editorial assistant and 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!

Visit James Li's Website


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