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Berkshire Hathaway CEO Warren Buffett holds a hand of cards bearing a caricature of his likeness, while playing bridge with shareholders at the annual Berkshire Hathaway shareholders meeting in Omaha, Neb., in May 2009
Berkshire Hathaway CEO Warren Buffett holds a hand of cards bearing a caricature of his likeness, while playing bridge with shareholders at the annual Berkshire Hathaway shareholders meeting in Omaha, Neb., in May 2009

Portfolio Strategy

Investing by copying Warren Buffett's style Add to ...

Need someone to help you pick stocks? Warren Buffett's available.

Owning shares of Berkshire Hathaway is almost like being an investor in a mutual fund run by Mr. Buffett. Berkshire's B-class shares trade under the symbol BRK.B on the New York Stock Exchange and they traded in the $3,400 (U.S.) as the final leg of 2009 approached.

But let's remember that Mr. Buffett is the chief executive officer of his own personal holding company, not a manager of other people's money. His investing decisions are strategic and designed for long-term advantage, rather than the short-term performance considerations that guide so many mutual funds. But what if Mr. Buffett was more accessible to the everyday investor? What if we could translate his stock-picking criteria into something that could be used to screen North American stocks? That way, we could draw up a list of Buffett-approved stocks. Stocks he might buy, in other words.

In fact, it's possible to choose stocks the Buffett way through a U.S. website called Validea.com. Validea has distilled the stock-picking techniques of a number of what it calls "guru" investors into screens that it applies on U.S.-listed stocks, including cross-listed Canadian companies. Validea includes Mr. Buffett in its list of gurus, and it agreed to share its list of stocks that might appeal to him.

Validea calls Mr. Buffett "the patient investor," and notes that he has never actually disclosed his stock-picking theories in written form. As a result, Validea has had to approximate his strategy based on the book Buffettology, written by is former daughter-in-law. Some key points:

Mr. Buffett's long-term approach can be seen in the fact that he has held some of his investments for decades, and that he has been quoted as saying Berkshire's favourite holding period is "forever."

Mr. Buffett doesn't try to capitalize on small day-to-day stock market movements.

Mr. Buffett focuses on a company's business operations in the belief that firms with strong franchises and good long-term prospects are likely to have shares that rise considerably over time.

To provide a long-term perspective on a company, Validea says its Buffett screening process goes as far back as a decade into a company's history. The criteria included in Validea's screening include the predictability of earnings, debt levels, return on equity (how well the company deploys money put up by investors), free cash flow (how much a company has left over after paying what it owes and needs to sustain its business) and the use of share repurchases (buying back shares, which can help boost the share price). Since the Buffett model portfolio was set up almost six years ago, the annualized return has been 2.7 per cent in U.S. dollar terms. Modest, yes, but much better than the 0.7-per-cent return of the S&P 500.

The one NYSE-listed Canadian stock that makes Validea's Buffett list is Imperial Oil , which earns a "pass" grade on every selection criteria. Several other stocks on the list are ones that Buffett already owns. They include Coca Cola Co. , the world's largest beverage company; Becton Dickinson & Co. , a manufacturer of medical supplies; Johnson & Johnson , a producer of health care and medical products; and Wal-Mart , the world's largest retailer. Other well-known stocks on the Validea list include General Dynamics , 3M Co. and Equifax . For a complete list of Validea's Buffett-approved stocks, see the chart at the end of this story.



For more Buffett buying ideas, check out Berkshire Hathaway's quarterly disclosures to U.S. regulators. At the end of September, Berkshire's holdings included Exxon-Mobil , Republic Services , Travelers Cos. , Wells Fargo , American Express and Eaton Corp. . Mr. Buffett's quarterly investment decisions are well documented in the financial press, so it's easy to keep track of what he's doing. Lots of investors scrutinize these choices for ideas on what stocks to buy.

Validea's Buffett-Approved Stocks

Name

Ticker

Score

US$ Price
(Nov. 6)

Mkt Cap
($-mil)

PE*

PEG**

LT EPS
Growth

China Mobile Ltd.

CHL

100%

47.63

191,069

12

0.5

24%

Colgate-Palmolive Co.

CL

100%

79.87

39,711

19

1.7

12%

Imperial Oil Ltd.

IMO

100%

37.69

31,946

20

0.9

22%

Infosys Technologies

INFY

100%

47.79

27,263

21

0.7

32%

Coach, Inc.

COH

100%

33.92

10,818

18

0.8

21%

Apollo Group, Inc.

APOL

100%

55.99

8,669

15

0.7

22%

Garmin Ltd.

GRMN

100%

28.43

5,705

10

0.3

35%

Fastenal Co.

FAST

100%

36.40

5,399

27

1.2

23%

ITT Educational Svc.

ESI

100%

94.24

3,482

13

0.4

32%

Mettler-Toledo Int'l

MTD

100%

99.39

3,355

20

0.8

26%

Aeropostale, Inc.

ARO

100%

33.70

2,264

13

0.5

27%

Pre-Paid Legal Svc.

PPD

100%

41.21

451

8

0.4

22%

World Acceptance Corp.

WRLD

100%

26.00

422

6

0.3

21%

Factset Research Sys.

FDS

99%

68.67

3,248

23

1.1

21%

Balchem Corp.

BCPC

99%

29.54

548

25

1.2

21%

Johnson & Johnson

JNJ

93%

60.30

166,374

13

1.0

13%

SAP AG

SAP

93%

46.71

55,538

19

1.7

12%

General Dynamics Corp.

GD

93%

65.58

25,301

11

0.5

20%

PT Telekom. Indonesia

TLK

93%

36.98

17,475

15

1.0

16%

Ross Stores, Inc.

ROST

93%

45.62

5,707

17

1.0

16%

Waters Corp.

WAT

93%

59.23

5,658

18

1.0

19%

Varian Medical Sys.

VAR

93%

43.49

5,459

16

1.1

15%

Total System Svc.

TSS

93%

16.75

3,302

15

1.3

12%

Idexx Laboratories

IDXX

93%

51.80

3,035

27

1.6

17%

Fossil, Inc.

FOSL

93%

28.43

1,895

16

0.9

18%

Landstar System

LSTR

93%

36.22

1,841

25

1.7

14%

Expeditors Int'l of Washington

EXPD

92%

31.62

6,703

28

1.4

20%

Trend Micro Inc.

TMICY

92%

35.92

4,792

7%

Watson Wyatt Worldwide

WW

92%

44.31

1,884

13

0.7

20%

Pfeiffer Vacuum Tech.

PVTCY

92%

68.00

579

11

0.6

18%

Computer Services

CSVI

92%

35.60

260

12

0.7

17%

Omnicom Group

OMC

89%

35.69

11,108

13

1.0

13%

ITT Corp.

ITT

89%

51.93

9,488

15

0.9

16%

Coca-Cola Co.

KO

86%

54.49

126,263

20

3.1

6%

Pepsico, Inc.

PEP

86%

61.76

96,373

19

2.1

9%

CNOOC Ltd.

CEO

86%

158.32

70,721

17

0.7

23%

3M Co.

MMM

86%

75.41

53,387

19

2.3

8%

Becton, Dickinson & Co.

BDX

86%

70.54

16,887

14

0.9

16%

The TJX Cos.

TJX

86%

38.33

16,246

17

1.3

14%

Paychex, Inc.

PAYX

86%

30.37

10,975

22

2.1

10%

C.H. Robinson Worldwide

CHRW

86%

56.50

9,513

27

1.0

25%

C.R. Bard, Inc.

BCR

86%

78.39

7,567

16

1.2

13%

Strayer Education

STRA

86%

199.82

2,799

29

1.4

20%

Landauer, Inc.

LDR

86%

54.45

509

22

2.9

8%

Raven Industries

RAVN

86%

25.31

456

16

1.2

14%

Suffolk Bancorp

SUBK

86%

27.14

261

11

1.6

7%

Novo Nordisk A/S

NVO

85%

64.23

44,937

18

0.9

20%

Wipro Limited

WIT

85%

18.04

26,422

31

1.4

22%

United-Guardian, Inc.

UG

85%

9.95

49

14

2.4

6%

Wal-Mart Stores, Inc.

WMT

82%

51.25

197,662

15

1.8

9%

Mobile Telesystems

MBT

82%

47.85

18,040

16

0.7

23%

Sysco Corp,

SYY

82%

26.91

15,926

14

2.2

7%

Darden Restaurants

DRI

82%

32.65

4,558

13

1.3

10%

Equifax Inc.

EFX

82%

28.50

3,604

15

2.6

6%

Lincare Holdings

LNCR

82%

33.10

2,255

15

1.6

9%

Ametek, Inc.

AME

80%

35.71

3,839

19

0.9

21%

* Price-Earnings Ratio; ** Price-Earnings To Growth Ratio

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