Digging into Buffett's Holdings

 | Apr 07, 2014 | 12:24 PM EDT
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Whenever I see an article that criticizes the stock holdings of Warren Buffett, I know it's time to break out his portfolio and look it over for some terrific ideas.

When I see a piece entitled "The Oracle of Omaha Lately Looking a Bit Ordinary," then I jump up and down for his top ten holdings because I know it must be time for those stocks to shine.

That's exactly how I felt after the New York Times published a statistical analysis of Buffett's stocks suggesting that his underperformance vs. the S&P 500 for four of the last five years is, and I quote, "unlikely to be a string of bad luck."

Sure enough, at a time when momentum funds are falling by the wayside and what's hot has definitively become what's not, there is much to like about what Warren owns. Consider his top ten positions.

First is Wells Fargo (WFC). This bank reports this Friday and it's been a leader in returning capital and in raising its dividends, even without a lot of growth in this country's economy and it is a U.S.-based story. Still, the bank has used a fantastic, truly fortress balance sheet to buy other banks and take a 30% control of the U.S. mortgage market. When it reports on Friday it may not shoot the lights out. It needs a yield curve that generates a better return on deposits. But if the stock gets hit, you know to buy it as the buyback and dividend growth will be the best in the industry because it is the regulators' favorite big bank stock.    

Next up is Coca-Cola (KO). I am not a fan of Coca-Cola because of the rapid decline of both diet and regular carbonated sodas in this country. But it is still a growth brand overseas and it has, in a yield-starved world, a terrific dividend.

Third is American Express (AXP). Who among us wishes that we owned this juggernaut? Its brand has come through the downturn in fine fashion and it's control of the international emerging market wallet share is the envy of the world.

Fourth is IBM (IBM). When the software-as-a-service stocks and the cloud-based high fliers are falling apart, IBM shines. Here's a company that is two quarters away from showing how it truly is a software and consulting company with a hardware appendage that isn't going to hurt the company any more. It is on the cusp of a major change, even as last year was a not so hot a year. I think 2015 is when you will see the changes and Buffett's a very patient man.

Fifth is long-time holding: Procter & Gamble (PG). I know this company is discounting its products heavily and it's trying to figure out how to produce some lost momentum, but it's paying you to wait and it has a lot of room to restructure and spin off ailing brands.

Sixth is ExxonMobil (XOM) and have you noticed that it has stopped going down of late? I think that's because it is, in the end, going to stay extremely lucrative, even as it hasn't been able to grow production. It is the only company I follow with a 50-year plan and while I don't like its lack of growth, its buyback generation is pretty darned sweet in a time when stability's a hard thing to find.

Seventh is Wal-Mart (WMT) and I think that this company, while not a favorite, has at least stabilized its decline. Not a reason to own, but how about "you could do worse?"

Eighth is a personal favorite of mine: US Bancorp (USB). It, like Wells Fargo, is a huge returner of capital and a serial dividend booster. Ever notice you never hear about these guys getting in trouble? That's because they don't. This is the pristine national bank.

DirectTV (DTV) is ninth and your only thought here should be "how did Warren know to buy this one, it's doing so well?" In a land of scarce media properties, he has one of the most coveted around.

Finally, there is DaVita Health Care (DVA). This dialysis play is one of the best baby boomer stories out there. It can be a huge winner under the Affordable Care Act.

What can I say? I think anyone looking for ten solid ideas would be hard pressed to find many better than this portfolio. It is the antidote to the madness infecting the market or, at least, the Nasdaq right now. Warren Buffett? I am a buyer, not a seller. I think this year his luck's about to change.

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