Warren Buffett has urged investors to lower their expectations during this queasy economic year.
That's not exactly what they want to hear from Buffett, whose $62 billion net worth and excellent long-term track record tend to infect his admirers with overwrought expectations.
They'd prefer to learn more about his success buying shares of Chinese oil company PetroChina (PTR) in 2002 and 2003 for $488 million and selling them last fall for $4 billion.
"A lot of people think Warren Buffett simply buys and holds, but he doesn't necessarily," said Peter Bruno, editor and publisher of The Warren Buffett Holdings Newsletter in Boca Raton, Fla. "The fact that he sold his shares in PetroChina last October at such a high price shows he does get out of stocks."
Despite criticism leveled at the holding on political and human rights grounds, Buffett said he sold simply because the price level reached that of the world's other oil companies.
Investors are examining Buffett's Berkshire Hathaway stock portfolio carefully for buying opportunities precisely because the market is so arduous.
The patient and ever-observant Buffett, 77, is known for buying reasonably priced stocks of well-managed businesses that he understands. They must be in proven industries and have clear competitive advantages. He sticks with them so long as they still make sense.
"Whenever Warren Buffett discloses his holdings, those stocks get a bit of a boost," said Damien Conover, an analyst for Morningstar Inc. "But he's a long-term investor, so individuals should be looking for good returns in these stocks over one or two years."
A few Buffett holdings are especially worth buying, Conover believes:
GlaxoSmithKline PLC (GSK) boasts many interesting new vaccines. For example, Cervarix, a cervical cancer vaccine, is expected to generate more than $1 billion in sales. Capital appreciation and a dividend yield of more than 5 percent are positives.
Sanofi-Aventis SA (SNY), which possesses a strong diabetes franchise, will benefit from an aging population that assures vast potential growth for any viable diabetes-focused product. Buffett invested $1.5 billion in the French company's stock last year.
Johnson & Johnson (JNJ), with its diverse health care businesses, will be able to increase sales even in a slowing economy. Buffett put another $2.7 billion into the stock in 2007.
Buffett's Wal-Mart Stores Inc. (WMT) and Anheuser-Busch Companies Inc. (BUD) are also considered top-rated stocks by Morningstar, though they're now fairly valued.
"I've used Warren Buffett's method for 18 years and beaten the S&P 500 by 5 or 6 percent a year on average, so it has worked for me," said Richard Losch, president of Losch Management Co., a fee-only investment adviser in Orlando, Fla. "Buffett makes mistakes because value investing is an imperfect science, but he makes fewer than anybody else."
Buffett considers large international companies a natural hedge against the dollar since they earn most of their profits overseas.
The Oracle from Omaha has won big with Wal-Mart, Bruno said, while United Parcel Service (UPS) has held up well in his portfolio for a long time. Financial stocks Wells Fargo & Co. (WFC) and M&T Bank Corp. (MTB) haven't suffered the extreme subprime trauma of some rivals.
Buffett has been using problems of financial stocks as a buying opportunity. For example, he raised his ownership percentage of Wells Fargo to 9.2 percent. The stock of Wal-Mart and Wells Fargo are currently a consensus "buy" with Wall Street analysts, while UPS and M&T are "holds."
"Warren Buffett is a great value investor, but he can be a lousy timer," Bruno said. "For example, he's a big owner of Comcast Corp. stock, which has been going down and down in price because a lack of new construction activity is hurting cable operations."
Among the worst performers in Buffett's portfolio are the much-criticized ratings agency Moody's Corp. (MCO) and health-care firm UnitedHealth Group Inc. (UNH). General Electric Co. (GE) has disappointed investors too.
"He announced a few weeks ago that the Berkshire Hathaway investment portfolio was down 9 percent for the first quarter and the lesson is that no one, even Warren Buffett, really knows what the market will do," Bruno said. "What you really need is discipline, a lack of emotion and a predetermined price level."
Buffett apologists would counter that no one should ever call anything in his portfolio a mistake until it is actually sold at a loss. For example, UnitedHealth still receives a consensus "buy" rating from analysts, while Moody's and GE are midway between "buy" and "hold," according to Thomson.
Improved prospects of railroads thanks to technology, efficiencies and globalization encouraged Buffett to load up on Burlington Northern Santa Fe Corp. (BNI) to the point where he now owns nearly 18 percent of the company. The shares currently rate a consensus "hold" on Wall Street.
Buffett's long-term philosophy rather than his selections at a given moment are what count most, some experts said.
Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, AZ 85287-4702, or by e-mail at [email protected]