Friday, June 15, 2012

Two Low P/E Stocks Selling For Less Than What Warren Buffett Paid

According to the latest filings available, Warren Buffett bought both of the following stocks at prices higher than what they are selling at now.

Tesco PLC (TSCDY)
Sanofi (SNY)

Each are large capitalization European stocks with substantial global franchises. Of course, they are certainly not immune to Europe's troubles.

Buffett added to his stake in Tesco earlier this year after the retailer posted weak seasonal figures that Tesco's CEO Philip Clark called "disappointing."

Tesco has roughly tripled its profits over the past decade or so. Well, that growth in profitability is now in question as the company steps up investments to revamp its UK business and get that important part of its house in order.

The UK business is extremely profitable (two-thirds of the company's sales and profits come from it) but seems to have been neglected somewhat while to company has been expanding overseas.

Tesco is the third largest retailer in the world in terms of revenue.

Buffett Boost Stake in Tesco

Last month Mr. Clark's compensation was cut nearly in half and he waived his annual bonus due to the supermarket chain's recent results and performance (in January Tesco issued its first profit warning in a couple of decades).

These days, there are actually a number of choices among global pharmaceutical businesses like Sanofi (and also quite a few integrated oil businesses) with P/E's around 10 or less and above average dividend yields.

What they lack is an investor like Buffett having established meaningful stakes in them at higher prices.

Now, I've never been all that big a fan of pharmaceutical businesses (or, for that matter, integrated oil), but eventually a big enough discount to a conservative estimate of intrinsic value can adjust my enthusiasm.

Naturally, just because these stocks currently appear not terribly expensive, have nice dividend yields, are owned by* Berkshire Hathaway (BRKa), and sell below the prices he was willing to pay doesn't necessarily make them good investments. Both certainly appear to have some real business challenges in front of them.

Still, these probably aren't the worst possible places to begin doing one's own extensive research and analysis.

Adam

Long position in BRKb established at lower prices. Also, very small long positions in TSCDY and SNY. These two stocks are not likely to be held as long-term positions. BRKb certainly is.

* According to the latest letter these two stocks are still owned by Berkshire Hathaway, but obviously either could have been sold.
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