Tags: Dang | Buffett | stocks | undervalue

GuruFocus' Dang: What Warren Buffett Would Buy During a Stock Rout

By    |   Thursday, 16 October 2014 12:46 PM

Warren Buffett has not revealed the stocks he is buying during the current market downturn, but Sheila Dang, editorial assistant at GuruFocus, suggests a few that could be on his plate based on Buffett's past picks.

Buffett, a value seeker who sometimes goes where others fear to tread, mentioned on CNBC earlier this month he was buying stocks in spite of tumbling share prices.

"The move shouldn't be surprising for anyone who follows Buffett's activities. It was the perfect time for the investor to purchase stocks of good companies at a discount," Dang wrote.

The only real clue Buffett gave on CNBC was that the company names would be "recognizable."

Dang used Buffett's typical modus operandi to make its predictions, notably to select stocks of well-run companies with good management that trade at a discount. Buffett also is not shy about adding to existing positions when their prices go down, or going after established brand names.

Dang also used something called a "Peter Lynch chart" technique to screen for likely Buffett buys. That technique, developed by the famous growth-at-a-reasonable-price (GARP) value investor, constructs a two-line chart by taking the stock price and the earnings per share (EPS) together and aligning the value of $1 in earnings per share to each $15 in stock price.

When the stock price line in a Peter Lynch chart falls below the EPS line, it's a buy signal. Dang said Lynch's chart technique coincidentally lines up with a significant number of Buffett purchases.

Here are some of the likely Buffett October buys, according to Dang:

Suncor Energy: A Canadian oil company with expanding gross profits and margins and a growing dividend yield of 2.6 percent. Some famous hedge fund managers who also have taken Suncor positions are Ken Heebner, Steven Cohen and Jeremy Grantham, according to Dang.

Liberty Media: Buffett already owned a 1.2 percent stake in the company, according to his latest SEC filings, but Dang concludes it's undervalued and he may be buying more.

Kellogg: Just the kind of familiar name Buffett tends to like, with brands such as Keebler, Cheez-It and Famous Amos. The company's price-earnings ratio is currently 11.8, which is near the 10-year low of 11.64. Famous investor Mario Gabelli also owns Kellogg.

Aetna: The health insurer's five-year growth rate is 142.4 percent, better than 87 percent of the companies in the health plans industry. Veteran hedge fund operator John Paulson also holds the stock.

It's no surprise Buffett has been buying stocks while others are fleeing the market, according to MarketWatch's Mitch Tuchman.

"Amid all the of doomsday predictions and fearful hand-wringing about the stock market, the knowing chuckle of billionaire investor Warren Buffett once again puts panic into context," Tuchman wrote.

"As stocks fell last week, Buffett was buying. He was likely to buy anyway, he said. Lower prices just made it easier."

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Warren Buffett has not revealed the stocks he is buying during the current market downturn, but Sheila Dang, editorial assistant at GuruFocus, suggests a few that could be on his plate based on Buffett's past picks.
Dang, Buffett, stocks, undervalue
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2014-46-16
Thursday, 16 October 2014 12:46 PM
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