Warren Buffett might be looking to buy these 12 stocks, Wells Fargo says

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  • Warren Buffett, the chairman and CEO of Berkshire Hathaway, has long been known as a value investor.
  • “Value” can be measured many different ways – from “price-to-book” to “price-to-earnings” – to gauge a stock’s valuation.
  • Wells Fargo published a list of 12 stocks that it says Buffett, by a handful of valuation measures, might be interested in now.
  • Markets Insider has listed them here, with a breakdown of the measures Wells Fargo analysed to come up with its collection.

Warren Buffett, the chairman and CEO of Berkshire Hathaway, is known for many things – his fast-food-heavy diet, his philanthropy, his business acumen as one of the wealthiest people in the world, and his investing style.

Buffett has long been known as a value investor. In other words, he likes to invest in companies with underlying fundamentals he finds strong, and can hold for the long-run. He might find those qualities in Apple, since the iPhone giant is Berkshire Hathaway’s largest company holding.

His style is in contrast with growth investors, who tend to invest in companies showing signs of above-average growth, even if the stock price appears to be expensive or classic “value” metrics are high.

In a new note examining several valuation measures that Buffett might utilise, Wells Fargo came up with 12 names he might be interested in now. Here’s a breakdown of the different indicators Wells Fargo considered.

  • Five-year average return on equity (ROE) greater than 15%
  • Five-year average return on invested capital (ROIC) greater than 15%
  • Debt-to-equity (D/E) less than or equal to 80% of the industry average
  • Five-year average pretax profit margin (PM) 20% higher than the industry average
  • Current price-to-earning ratios (P/E) below ten-year historical and industry average P/E ratios (by consensus)
  • Current price-to-book value multiples (P/B) below historical and industry multiples
  • Current price-to-cash flow (P/CF) ratios below the industry average

And here are the 12 companies that Wells Fargo believes Buffett could target, based on these qualifications:


Altria

Markets InsiderAltria shares.
Ticker:MO

Industry: Tobacco

5-Year Average ROE: 139.8%

5-Year Average ROIC: 37.6%

D/E versus Industry D/E: 76.8% vs. 160.8%

5-year average pretax PM versus 5-year average industry PM: 57.8% vs. 30.0%

Current P/E versus Industry P/E: 12.1 vs. 13.9

Current P/B versus Industry P/B: 5.9 vs. 6.6

Current P/CF versus Industry P/CF:12.5 vs. 33.4

Market Cap: $US90.6 billion

Source: Wells Fargo


Cboe Global Markets

Markets InsiderCboe shares.
Ticker:CBOE

Industry: Financial exchanges

5-Year Average ROE: 61.3%

5-Year Average ROIC: 60.0%

D/E versus Industry D/E: 29.0% vs. 166.6%

5-year average pretax PM versus 5-year average industry PM: 42.5% vs. 34.4%

Current P/E versus Industry P/E: 19.0 vs. 23.2

Current P/B versus Industry P/B: 3.3 vs. 14.0

Current P/CF versus Industry P/CF:20.5 vs. 20.8

Market Cap: $US10.3 billion

Source: Wells Fargo


CNX Midstream Partners

Markets InsiderCNX Midstream Partners
Ticker: CNXM

Industry: Oil and gas

5-Year Average ROE: 22.0%

5-Year Average ROIC: 17.7%

D/E versus Industry D/E: 139.0% vs. 287.0%

5-year average pretax PM versus 5-year average industry PM: 52.2% vs. 24.1%

Current P/E versus Industry P/E: 9.7 vs. 18.8

Current P/B versus Industry P/B: 3.5 vs. 4.1

Current P/CF versus Industry P/CF:6.4 vs. 7.3

Market Cap: $US1.1 billion

Source: Wells Fargo


Cognisant Technology Solutions

Markets InsiderCognisant Technology Solutions shares.
Ticker:CTSH

Industry:Technology

5-Year Average ROE: 18.4%

5-Year Average ROIC: 16.8%

D/E versus Industry D/E: 5.7% vs. 108.2%

5-year average pretax PM versus 5-year average industry PM: 18.1% vs. 8.6%

Current P/E versus Industry P/E: 14.9 vs. 20.9

Current P/B versus Industry P/B: 3.4 vs. 4.3

Current P/CF versus Industry P/CF:13.9 vs. 13.6

Market Cap: $US37.4 billion

Source: Wells Fargo


Micron Technology

Markets InsiderMicron shares.
Ticker:MU

Industry: Semiconductors

5-Year Average ROE: 28.4%

5-Year Average ROIC: 19.0%

D/E versus Industry D/E: 11.0% vs. 84.7%

5-year average pretax PM versus 5-year average industry PM: 21.8% vs. 10.4%

Current P/E versus Industry P/E: 4.4 vs. 22.0

Current P/B versus Industry P/B: 1.1 vs. 5.9

Current P/CF versus Industry P/CF:2.1 vs. 18.2

Market Cap: $US38.9 billion

Source: Wells Fargo


Tapestry

Markets InsiderTapestry shares.
Ticker:TPR

Industry: Luxury retail

5-Year Average ROE: 20.0%

5-Year Average ROIC: 16.2%

D/E versus Industry D/E: 48.4% vs. 62.4%

5-year average pretax PM versus 5-year average industry PM: 15.8% vs. 11.0%

Current P/E versus Industry P/E: 12.9 vs. 22.4

Current P/B versus Industry P/B: 3.2 vs. 5.0

Current P/CF versus Industry P/CF:9.6 vs. 13.6

Market Cap: $US10.5 billion

Source: Wells Fargo


Capri Holdings

Markets InsiderCapri shares.
Ticker:CPRI

Industry: Apparel

5-Year Average ROE: 38.6%

5-Year Average ROIC: 37.0%

D/E versus Industry D/E: 23.1% vs. 62.4%

5-year average pretax PM versus 5-year average industry PM: 23.0% vs. 11.0%

Current P/E versus Industry P/E: 8.0 vs. 22.4

Current P/B versus Industry P/B: 2.8 vs. 5.0

Current P/CF versus Industry P/CF:6.1 vs. 13.6

Market Cap: $US6.1 billion

Source: Wells Fargo


Cummins

Markets InsiderCummins shares.
Ticker:CMI

Industry: Diversified industrials

5-Year Average ROE: 19.0%

5-Year Average ROIC: 15.5%

D/E versus Industry D/E: 21.7% vs. 89.2%

5-year average pretax PM versus 5-year average industry PM: 11.6% vs. 9.1%

Current P/E versus Industry P/E: 10.3 vs. 13.7

Current P/B versus Industry P/B: 3.1 vs. 2.6

Current P/CF versus Industry P/CF:10.5 vs. 19.3

Market Cap: $US22.5 billion

Source: Wells Fargo


EQM Midstream Partners

Markest InsiderEQM Midstream Partners shares.
Ticker:EQM

Industry: Oil and gas

5-Year Average ROE: 29.4%

5-Year Average ROIC: 18.5%

D/E versus Industry D/E: 68.8% vs. 287.0%

5-year average pretax PM versus 5-year average industry PM: 66.4% vs. 24.1%

Current P/E versus Industry P/E: 8.9 vs. 18.8

Current P/B versus Industry P/B: 1.1 vs. 4.1

Current P/CF versus Industry P/CF:3.9 vs. 7.3

Market Cap: $US5.3 billion

Source: Wells Fargo


Regeneron Pharmaceuticals

Markets InsiderRegeneron shares.
Ticker:REGN

Sector: Pharmaceuticals

5-Year Average ROE: 21.5%

5-Year Average ROIC: 18.3%

D/E versus Industry D/E: 9.0% vs. 52.0%

5-year average pretax PM versus 5-year average industry PM: 30.8% vs. 17.8%

Current P/E versus Industry P/E: 18.6 vs. 30.1

Current P/B versus Industry P/B: 5.5 vs. 5.7

Current P/CF versus Industry P/CF:21.2 vs. 30.7

Market Cap: $US42.6 billion

Source: Wells Fargo


Urban Outfitters

Markets InsiderUrban Outfitters shares.
Ticker:URBN

Industry: Apparel

5-Year Average ROE: 15.6%

5-Year Average ROIC: 15.2%

D/E versus Industry D/E: 0.0% vs. 12.8%

5-year average pretax PM versus 5-year average industry PM: 10.3% vs. 6.8%

Current P/E versus Industry P/E: 11.9 vs. 14.5

Current P/B versus Industry P/B: 2.4 vs. 5.8

Current P/CF versus Industry P/CF: 8.7 vs. 8.3

Market Cap: $US3.5 billion

Source: Wells Fargo


Bed Bath & Beyond

Markets InsiderBed Bath & Beyond shares.
Ticker:BBBY

Industry: Specialty retail

5-Year Average ROE: 25.4%

5-Year Average ROIC: 18.6%

D/E versus Industry D/E: 51.4% vs. 477.5%

5-year average pretax PM versus 5-year average industry PM: 10.4% vs. 6.6%

Current P/E versus Industry P/E: 7.7 vs. 14.1

Current P/B versus Industry P/B: 0.7 vs. 16.1

Current P/CF versus Industry P/CF:2.0 vs. 8.2

Market Cap: $US2.1 billion

Source: Wells Fargo


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