Warren Buffett, chairman and CEO of Berkshire HathawayNATI HARNIK/The Associated Press
Brian Pinchuk is a portfolio manager at Lorne Steinberg Wealth Management in Montreal.
What am I looking for?
The most compelling companies that prominent value investors have recently added to their portfolios.
While peering over the shoulder of the "smart kids" may not be a wise approach to doing school homework, a similar strategy can often be a great source for new ideas when it comes to investing – so long as you do your own research to ensure that you're not too late.
How I did it
At Lorne Steinberg Wealth Management, we are always on the lookout for quality businesses at undervalued prices.
To help pinpoint prospects, I used S&P's Capital IQ Screener to sift through more than 17,000 stocks on major exchanges worldwide. Specifically, I screened for shares that were recently acquired by well-known and successful value investors, such as Warren Buffett (Berkshire Hathaway), Seth Klarman (Baupost Group), Joel Greenblatt (Gotham Asset Management), and others.
I was interested in companies that are not overburdened with debt, have a track record of generating positive free cash flow and have share prices that are down significantly from their highs. I also wanted to focus on companies that have yet to advance in any meaningful way since the notable investors initiated their positions. I then combed through the list to find companies with favourable value-based metrics, such as relatively low forward earnings multiples and price-to-book ratios. The accompanying chart shows the top companies sorted by the lowest forward earnings multiple, a measure that can help point to stock prices that do not reflect a company's long-term fundamentals.
What I found
The companies listed here are a good starting point for finding value and our research team is actively looking at investing in a number of them.
Remember, though: Blindly copying what others are doing is unlikely to prove a successful investment strategy. As with hunting for a used car, one can find an apparent bargain, but you should have a mechanic look under the hood. Things are often cheap for a good reason. Investors are strongly advised to do their own homework before buying any of the stocks listed here.
Brian Pinchuk