Today I like to look deeper in the selection criteria and show you some stock ideas that might match his affords.
Billionaire Warren Buffett of Berkshire Hathaway seeks specific qualities in potential stock investments: an undervalued share price, an astute management, significant growth opportunities and a strong "moat" where the company can maintain a competitive advantage over its peers.
Those stocks have...
- Strong Cash Flows
- Little need for long-term debt (other than for purchasing other monopoly type businesses)
- Strong consistent upward trend in earnings and long-term price appreciation.
- Operating margins, net profit margins and return on equity are all above industry averages.
In addition, he wants to...
- Look for a history of increasing earnings for the company. The shorter term earnings trend (3-5 year) should be better than the longer term trend (5-10 years) taking the overall economic conditions into account. Buffett finds more success focusing on the longer three to five year averages as opposed to quarterly or yearly results.
- The company should have a strong and consistent return on equity that is achieved without excess leverage or tricky accounting. Operating margins, net profit margins and return on equity should all be above the industry averages.
- The company should carry little long-term debt measured according to industry standards.
- Prefer companies that have been producing the same product or service for a number of years.
- Invest in companies that have historically used their cash flow in ways that benefit the company and shareholders. These can include stock repurchase plans, purchases of related monopoly type businesses or paying reasonable dividends.
- Prefer larger companies, 5 billion and up. They tend to have a longer track record of growth and are able to better weather any market downturns.
Let's take a look at five blue-chip giants that Buffett would have bought 40 years ago, but that still provide plenty of value, growth and income for nonbillionaires like us.
Here are some results that could meet Warren Buffett's investment criteria now...
Ford Motor Company -- Yield: 4.19%
Ford Motor Company (NYSE:F) employs 187,000 people, generates revenue of $144,077.00 million and has a net income of $3,186.00 million. The current market capitalization stands at $56.57 billion.
Ford Motor Company’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $12,803.00 million. The EBITDA margin is 8.89% (the operating margin is 2.30% and the net profit margin 2.21%).
Financials: The total debt represents 57.15% of Ford Motor Company assets and the total debt in relation to the equity amounts to 480.43%. Due to the financial situation, a return on equity of 12.52% was realized by Ford Motor Company.
Twelve trailing months earnings per share reached a value of $1.19. Last fiscal year, Ford Motor Company paid $0.50 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 11.78, the P/S ratio is 0.39 and the P/B ratio is finally 2.31. The dividend yield amounts to 4.19%.
Stock Charts:
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| Long-Term Stock Price Chart of Ford Motor Company (F) |
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| Long-Term Dividend Payment History of Ford Motor Company (F) |
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| Long-Term Dividend Yield History of Ford Motor Company (F) |
Emerson Electric -- Yield: 3.96%
Emerson Electric (NYSE:EMR) employs 115,100 people, generates revenue of $22,304.00 million and has a net income of $2,733.00 million. The current market capitalization stands at $31.52 billion.Emerson Electric’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $4,319.00 million. The EBITDA margin is 19.36% (the operating margin is 19.42% and the net profit margin 12.25%).
Financials: The total debt represents 30.98% of Emerson Electric assets and the total debt in relation to the equity amounts to 84.18%. Due to the financial situation, a return on equity of 29.70% was realized by Emerson Electric.
Twelve trailing months earnings per share reached a value of $4.01. Last fiscal year, Emerson Electric paid $1.88 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 11.80, the P/S ratio is 1.41 and the P/B ratio is finally 3.91. The dividend yield amounts to 3.96%.
Stock Charts:
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| Long-Term Stock Price Chart of Emerson Electric (EMR) |
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| Long-Term Dividend Payment History of Emerson Electric (EMR) |
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| Long-Term Dividend Yield History of Emerson Electric (EMR) |
Procter & Gamble -- Yield: 3.49%
Procter & Gamble (NYSE:PG) employs 110,000 people, generates revenue of $76,279.00 million and has a net income of $8,930.00 million. The current market capitalization stands at $206.19 billion.Procter & Gamble’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $15,979.00 million. The EBITDA margin is 20.95% (the operating margin is 15.46% and the net profit margin 11.71%).
Financials: The total debt represents 23.43% of Procter & Gamble assets and the total debt in relation to the equity amounts to 48.62%. Due to the financial situation, a return on equity of 13.23% was realized by Procter & Gamble.
Twelve trailing months earnings per share reached a value of $3.04. Last fiscal year, Procter & Gamble paid $2.59 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 24.55, the P/S ratio is 2.71 and the P/B ratio is finally 3.36. The dividend yield amounts to 3.49%.
Stock Charts:
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| Long-Term Stock Price Chart of Procter & Gamble (PG) |
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| Long-Term Dividend Payment History of Procter & Gamble (PG) |
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| Long-Term Dividend Yield History of Procter & Gamble (PG) |
General Electric -- Yield: 3.00%
General Electric (NYSE:GE) employs 305,000 people, generates revenue of $148,589.00 million and has a net income of $15,457.00 million. The current market capitalization stands at $309.03 billion.General Electric’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $29,386.00 million. The EBITDA margin is 19.78% (the operating margin is 12.33% and the net profit margin 10.40%).
Financials: The total debt represents 50.97% of General Electric assets and the total debt in relation to the equity amounts to 259.92%. Due to the financial situation, a return on equity of 11.85% was realized by General Electric.
Twelve trailing months earnings per share reached a value of $0.31. Last fiscal year, General Electric paid $0.89 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 97.86, the P/S ratio is 2.09 and the P/B ratio is finally 2.41. The dividend yield amounts to 3.00%.
Stock Charts:
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| Long-Term Stock Price Chart of General Electric (GE) |
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| Long-Term Dividend Payment History of General Electric (GE) |
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| Long-Term Dividend Yield History of General Electric (GE) |
3M -- Yield: 2.58%
3M (NYSE:MMM) employs 89,800 people, generates revenue of $31,821.00 million and has a net income of $4,998.00 million. The current market capitalization stands at $97.65 billion.3M’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $8,553.00 million. The EBITDA margin is 26.88% (the operating margin is 22.42% and the net profit margin 15.71%).
Financials: The total debt represents 22.05% of 3M assets and the total debt in relation to the equity amounts to 52.61%. Due to the financial situation, a return on equity of 32.38% was realized by 3M.
Twelve trailing months earnings per share reached a value of $7.74. Last fiscal year, 3M paid $3.42 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 20.20, the P/S ratio is 3.08 and the P/B ratio is finally 7.71. The dividend yield amounts to 2.58%.
Stock Charts:
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| Long-Term Stock Price Chart of 3M (MMM) |
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| Long-Term Dividend Payment History of 3M (MMM) |
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| Long-Term Dividend Yield History of 3M (MMM) |
Boeing -- Yield: 2.51%
Boeing (NYSE:BA) employs 165,500 people, generates revenue of $90,762.00 million and has a net income of $5,446.00 million. The current market capitalization stands at $96.93 billion.Boeing’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $8,837.00 million. The EBITDA margin is 9.74% (the operating margin is 8.23% and the net profit margin 6.00%).
Financials: The total debt represents 9.14% of Boeing assets and the total debt in relation to the equity amounts to 104.67%. Due to the financial situation, a return on equity of 46.22% was realized by Boeing.
Twelve trailing months earnings per share reached a value of $7.96. Last fiscal year, Boeing paid $3.10 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 17.91, the P/S ratio is 1.07 and the P/B ratio is finally 11.83. The dividend yield amounts to 2.51%.
Stock Charts:
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| Long-Term Stock Price Chart of Boeing (BA) |
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| Long-Term Dividend Payment History of Boeing (BA) |
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| Long-Term Dividend Yield History of Boeing (BA) |
E I Du Pont De Nemours -- Yield: 2.27%
E I Du Pont De Nemours (NYSE:DD) employs 63,000 people, generates revenue of $34,906.00 million and has a net income of $3,621.00 million. The current market capitalization stands at $58.66 billion.E I Du Pont De Nemours’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $6,734.00 million. The EBITDA margin is 19.29% (the operating margin is 12.26% and the net profit margin 10.37%).
Financials: The total debt represents 21.10% of E I Du Pont De Nemours assets and the total debt in relation to the equity amounts to 79.99%. Due to the financial situation, a return on equity of 24.76% was realized by E I Du Pont De Nemours.
Twelve trailing months earnings per share reached a value of $3.08. Last fiscal year, E I Du Pont De Nemours paid $1.84 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 21.48, the P/S ratio is 1.68 and the P/B ratio is finally 4.63. The dividend yield amounts to 2.27%.
Stock Charts:
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| Long-Term Stock Price Chart of E I Du Pont De Nemours (DD) |
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| Long-Term Dividend Payment History of E I Du Pont De Nemours (DD) |
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| Long-Term Dividend Yield History of E I Du Pont De Nemours (DD) |