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Berkshire Hathaway CEO Warren Buffett prepares to throw a newspaper in a competition just before the company's annual meeting in Omaha on May 4, 2013. (RICK WILKING/REUTERS)
Berkshire Hathaway CEO Warren Buffett prepares to throw a newspaper in a competition just before the company's annual meeting in Omaha on May 4, 2013. (RICK WILKING/REUTERS)

NUMBER CRUNCHER

Top 10 Canadian stocks in a Buffett-inspired portfolio Add to ...

What are we looking for?

Canadian stocks that Warren Buffett himself would be proud to own. The Oracle of Omaha’s rock-star status was once again on full display earlier this month as investors from across the globe crammed into his annual shareholders meeting in Nebraska. The record-breaking run in the stock market has ignited a lot of fear that a correction looms, but Mr. Buffett still sees value in equities, calling them “reasonably priced.”

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More about the screen

We’re going to use the Patient Investor model portfolio that was put together by Validea Canada, a premium stock screen service that has a partnership agreement with Globe Investor. It’s based on Buffettology, a book about Mr. Buffett’s investing strategies that was written by his former daughter-in-law, Mary Buffett.

The portfolio has done well this year, returning 3.6 per cent compared to 0.9 per cent for the S&P/TSX composite index.

Go back further, and its performance is even more impressive, gaining 31 per cent since August, 2010. Over that same period, the TSX was up a mere 6.3 per cent.

Mr. Buffett aims to buy stocks for the long haul. As such, only companies with consistent long-term track records can usually pass this rigorous screen that looks at such things as earnings predictability, capacity to pay off debt, and strong return on capital.

A bedrock principle for Mr. Buffett is to find companies with a “durable competitive advantage” – the opposite of being competitive based solely on price.

These stocks typically have strong brand power, a low cost of production compared to peers, and are able to generate many repeat sales of their products or services over the course of a year.

What we found

The 10 stocks that scored the highest come from sectors Mr. Buffett is known for taking a liking to, including financials, railways, and food and drug retailers. The current score for each stock represents what percentage of tests the stock passes, although it’s weighted based on the importance of each criterion.

Half of the stocks are new to the screen for 2013: Canadian National Railway Co., Equitable Group Inc., Richelieu Hardware Ltd., Stella-Jones Inc., and Badger Daylighting Ltd.

It’s somewhat of a surprise to see the little-known small cap, Badger Daylighting, make the list. It was added just last month, and has a score of 85 per cent.

Badger operates hydrovac trucks used to dig and remove soil and has been rapidly increasing its fleet as it expands in the U.S. market. It has a history of increasing dividends and currently yields 2.4 per cent.

Some Buffett-inspired investors may have already been on to this one: Over the past year, it has risen more than 60 per cent.

As always, use these screens only as the starting ground for further research. (Read more.)

 

Follow on Twitter: @eyeonequities

 

Validea Canada's Patient Investor model portfolio (Top 10)

Company Ticker Date
Added
Score
When
Added %
Home Capital Group Inc. HCG-T 4/15/2011 70%
Alimentation Couche-Tard Inc. ATD.B-T 8/6/2010 89%
National Bank Of Canada NA-T 12/23/2011 86%
Equitable Group Inc. ETC-T 4/12/2013 85%
Computer Modelling Group Ltd. CMG-T 9/28/2012 85%
Badger Daylighting Ltd. BAD-T 4/12/2013 85%
Canadian National Railway Co. CNR-T 2/15/2013 82%
Metro Inc. MRU-T 8/6/2010 82%
Stella-Jones Inc. SJ-T 5/10/2013 73%
Richelieu Hardware Ltd. RCH-T 5/10/2013 72%

Source: Validea Canada

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