In 1962, a young portfolio manager named Warren Buffett bought a textile mill company in Massachusetts named Berkshire Hathaway. Instead of using the cash generated from the business to expand or pay out a dividend, Buffett started buying stocks with the cash. The rest, as they say, is history, as "The Oracle of Omaha" stacked gains on top of gains to create one of the world's largest conglomerates, which has come to own hundreds of businesses thanks to its chairman's a once-in-a-generation ability to pick winning stocks. In his 47th year as head of Berkshire, Buffett now manages a portfolio of stocks worth more than $50-billion (U.S.).
Today we'll look at six stocks that Warren Buffett currently owns; we'll discuss why these stocks grabbed his attention, and why they should be on your radar, too. This "baby Buffett" portfolio, could be a great first step to get you back in the market if you've been sitting lately. Or, if you're a seasoned investor, consider one or more of these stocks as a welcome addition to your portfolio.
The Buffett Philosophy
Warren Buffett is a proponent of value investing, which looks to find stocks that are undervalued compared to their intrinsic value. Financial metrics like price/book (P/B), price/earnings (P/E), return on equity (ROE) and dividend yield carry the most weight on the Buffett scales. In addition, he seeks out companies that have what he calls "economic moats" - high barriers to entry for a competitor who may wish to invade the market and erode profit margins. (To learn more about the Buffett philosophy, check out Warren Buffett: How He Does It.)
Warren Buffett hands out a Girl Scout Thin Mint Cookie Blizzard at a Dairy Queen in Omaha, Neb.
Warren Buffett has proved beyond any doubt that he is one the greatest investors of our time. His holdings are reported to the Securities and Exchange Commission (SEC) several times per year, so investors who wish to copy his moves can do so with ease. This is made even easier by the fact that Buffett tends to hold stocks for a very long time, which means you don't have to worry about constantly trading in and out of positions to keep in line with his holdings.
Here are six of his most promising stock picks for the next decade and beyond.
1. Nike Inc. NKE-N
The Nike name is synonymous with high-performance shoes, but the company has expanded far beyond just footwear and is now a leader in apparel, sporting goods, and just about anything else for the athletically inclined. Nike is No.1 in just about every market it participates in, leading to high profit margins. Nike also has a strong balance sheet, with nearly $4 billion in cash and barely any debt to speak of. This company is also making big inroads in China and other developing economies, and has one of the strongest and most recognizable brands in the world.
2. Burlington Northern Santa Fe Corp. BNI-N
This freight railroad operator either owns or leases nearly 50,000 route miles of track in the United States and Canada. Burlington Northern transports nearly everything that makes an economy go, from consumer goods and autos to lumber, petroleum and coal.
Railroad operators like BNI are considered "early cycle" beneficiaries of a strengthening economy; when activity picks up after a recession, transport companies tend to be among the first to see higher orders, sales and earnings growth. Burlington Northern also sports a below-market average P/E and a handy 2% dividend yield.
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