{"id":25265,"date":"2011-11-17T06:58:16","date_gmt":"2011-11-17T11:58:16","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2011\/11\/17\/warren-buffett-buying-the-sizemore-investment-letters-picks\/"},"modified":"2011-11-17T06:58:16","modified_gmt":"2011-11-17T11:58:16","slug":"warren-buffett-buying-the-sizemore-investment-letters-picks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/11\/17\/warren-buffett-buying-the-sizemore-investment-letters-picks\/","title":{"rendered":"Warren Buffett Buying the Sizemore Investment Letter\u2019s Picks"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

\"\"<\/a>Lest I be accused of hero worship, I\u2019ll spare readers another Warren Buffett lovefest article.\u00a0 Yes, Buffett is a living legend, and yes, he is arguably the best investor of all time.\u00a0 But these facts are nothing new, and there have already been more articles than I can count written about the man and his methods over the years.\u00a0 Buffett has been elevated to something akin to a demigod in the minds of many value investors, and the art of investing like Buffett is a subject that has been thoroughly beaten to death by the financial press.<\/p>\n

With all of this as a caveat, I\u2019ll let readers in on a little secret:\u00a0 I do<\/em> like to keep tabs on what Buffett is buying or selling.<\/p>\n

It is never a good idea to blindly ape the trades of another investor\u2014even one with a track record like Buffett\u2019s.\u00a0 Due to the time lag in reporting with the SEC, an investor you follow may very well have sold the position you are copying by the time you buy it.\u00a0 And what makes sense in that investor\u2019s portfolio might make no sense at all in yours<\/em>.<\/p>\n

Still, given Buffett\u2019s penchant for long investment time horizons, he\u2019s a little easier to follow than most.\u00a0 And, again, his track record over the years make him a man worth watching.<\/p>\n

Imagine my pleasure this afternoon when I saw Berkshire Hathaway\u2019s updated portfolio holdings for the third quarter of 2011 (see Warren Buffett\u2019s portfolio<\/a><\/strong>).\u00a0 Three out of Buffett\u2019s five new additions were Sizemore Investment Letter<\/em> recommendations.<\/p>\n

Buffett initiated positions in SIL<\/em> recommendations DirecTV ($<\/span>DTV<\/a>),<\/strong> Intel ($<\/span>INTC<\/a>),<\/strong> and Visa ($<\/span>V<\/a>).<\/strong>\u00a0 His other two additions were pharmacy chain CVS ($<\/span>CVS<\/a>)<\/strong> and defense contractor General Dynamics ($<\/span>GD<\/a>).<\/strong><\/p>\n

While I was not invited to Buffett and partner Charlie Munger\u2019s strategy sessions before these purchases were made (I\u2019m sure my invitation was lost in the mail), I have a pretty good idea of what Buffett sees in DirecTV, Intel, and Visa.\u00a0 Each is a leader in its respective industry, and all three benefit from durable, long-term macro trends.<\/p>\n

\"\"<\/a>Let\u2019s start with DirecTV, the world\u2019s largest provider of paid satellite television.\u00a0 Given that TV-over-internet options like Netflix ($<\/span>NFLX<\/a>)<\/strong> and Hulu are increasingly crowding the turf of traditional paid TV\u2014and given that the paid TV market in the United States is already saturated\u2014Buffett\u2019s choice here might raise a few eyebrows.<\/p>\n

I can assume that Mr. Buffett\u2019s rationale was the same as my own:\u00a0 DirecTV is a direct play on rising living standards in the fast-growing markets of Latin America, where it already has 11.1 million subscribers (vs. 19.8 million in the United States). \u00a0Latin American revenues were up 46 percent in the 3rd<\/sup> quarter, due primarily to subscriber growth.\u00a0 But even in the United States\u2014where everyone already has paid TV service in one form or another\u2014revenues were up 8 percent.\u00a0 Not bad, given the precarious financial situation of the average American.\u00a0 DirecTV is also very reasonably priced at just 10 times expected earnings.<\/p>\n

\"\"<\/a>Moving on to Intel, my only question to Buffett is \u201cWhat took you so long?\u201d<\/em><\/p>\n

Intel absolutely dominates the market for computer processor chips.\u00a0 But this very strength is what has caused investors to shun Intel.\u00a0 You see, the PC is dead.\u00a0 Smart phones and the iPad killed it.\u00a0 And given that Intel is still quite weak in the mobile market, the company is resigned to be a slow-growth behemoth.\u00a0 Who wants to own a dinosaur like Intel?<\/p>\n

That story would seem to make sense at first.\u00a0 The problem is that it\u2019s simply not true.<\/p>\n

The PC is far from dead.\u00a0 Smart phones and tablet computers are growing at a much faster rate, of course.\u00a0 And the PC market does depend more heavily on the corporate and enterprise market, which is not in the best of shape in this economy.\u00a0 But tablets and smart phones do not replace<\/em> a computer for most users.\u00a0 And in most emerging markets, PCs are still very much a growth industry.<\/p>\n

Intel\u2019s revenues and earnings are growing at 28 percent and 17 percent year over year, respectively.\u00a0 And that is in near recessionary conditions.\u00a0 Meanwhile, the stock trades at just 9 times expected earnings and yields 3.4 percent.\u00a0 At current prices, I consider Intel a safer investment than most AAA-rated bonds.<\/p>\n

\"\"<\/a>Finally, we come to Visa.\u00a0 Visa and rival MasterCard ($<\/span>MA<\/a>)<\/strong>\u2014also a Berkshire holding\u2014have become somewhat trendy of late, but it wasn\u2019t like that for most of the year.\u00a0 Regulatory uncertainty cast a pall over credit card stocks, as did fears of a consumer slowdown.\u00a0 Yet investors who were, in Buffett\u2019s words, greedy when others were fearful did quite well in Visa and MasterCard.\u00a0 Both are among the best-performing stocks of 2011.<\/p>\n

Visa and MasterCard benefit from two powerful macro trends\u2014the transition to a global cashless society and the rise of the emerging-market middle class.\u00a0 As electronic payments become a larger share of commerce, credit and debit cards\u2014as well as newer payment methods such as PayPal\u2014will increasingly replace cash and checks.\u00a0 And while this process is well on its way in the United States and other developed markets, it is only just beginning in most emerging markets.\u00a0 This is a trend that will be with us for a while.<\/p>\n

Visa trades for 14 times expected earnings, which is a bargain for a company with Visa\u2019s brand, financial strength and growth prospects.<\/p>\n

DirecTV, Intel, and Visa are all long-term holdings of the Sizemore Investment Letter<\/em>.\u00a0 And while Buffett\u2019s reasons for purchasing may have been very different from our own, we\u2019re glad to see the Sage of Omaha sharing our enthusiasm.<\/p>\n

If you liked this article by Sizemore Insights<\/em>, you\u2019d probably enjoy The Sizemore Investment Letter<\/em>, our premium members-only newsletter. Click here<\/a><\/strong> for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter Lest I be accused of hero worship, I\u2019ll spare readers another Warren Buffett lovefest article.\u00a0 Yes, Buffett is a living legend, and yes, he is arguably the best investor of all time.\u00a0 But these facts are nothing new, and there have already been more articles than I can count written about … <\/p>\n

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