June 19, 2024

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5 Christmas Bargains in Warren Buffett’s Portfolio

As investors continue searching for Christmas bargains, five undervalued, predictable companies in Warren Buffett (Trades, Portfolio)’s third-quarter equity portfolio are Biogen Inc. (NASDAQ:BIIB), The Kroger Co. (NYSE:KR), Globe Life Inc. (NYSE:GL), M&T Bank Corp. (NYSE:MTB) and Bank of New York Mellon (NYSE:BK) according to advanced current portfolio statistics, a Premium feature of GuruFocus.

U.S. markets remain significantly overvalued based on Buffett’s market indicator

On Thursday, Buffett’s favorite market indicator stood at 181.9{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, close to an all-time high.


GuruFocus launched this week a new, modified Buffett Indicator that takes the ratio of the Wilshire 5000 full cap index to the sum of gross domestic product and total assets of the Federal Reserve Bank.


Based on the modified Buffett Indicator level, which stands at 135.9{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, the implied market return per year over the next eight years is -0.6{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} assuming that market valuations reverse to the 20-year mean valuation level.

Several GuruFocus model portfolios have performed well over the past 10 years

According to the GuruFocus Model Portfolios page, the Most Broadly Held, Buffett-Munger and Undervalued-Predictable model portfolios have a cumulated return of over 290{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} since the model portfolio’s inception date. Over the past 10 years, the model portfolios returned an annualized 15.76{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9}, 10.29{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} and 8.07{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} per year, compared to the Standard & Poor’s annualized return of 11.7{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} per year.

As such, investors may find Christmas bargains among undervalued, predictable companies. Such companies have strong and consistent revenue and earnings growth and are trading below their intrinsic value based on the discount free cash flow model and the discount earnings model.

GuruFocus also provides on each guru’s current portfolio page Premium portfolio statistics, including the top-holdings page, the Undervalued-Predictable holdings page, the top dividend yield page and other pages.

According to Buffett’s Undervalued-Predictable holdings page, five companies among Berkshire’s holdings as of the third quarter trade at a discount of at least 15{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} to the discounted earnings fair value.


Shares of Biogen traded around $244.49, approximately 71.57{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} below the discounted earnings fair price of $860.03. Additionally, the stock is modestly undervalued based on a price-to-GF Value ratio of 0.70.


GuruFocus ranks the Cambridge, Massachusetts-based drug manufacturer’s profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank and an operating margin that has increased approximately 2.10{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} per year on average over the past five years and is outperforming over 98{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.


Biogen’s valuation ranks 10 out of 10 on the back of price-earnings and price-sales ratios close to 10-year lows, with price-earnings ratios outperforming over 93.64{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.

Berkshire owns 643,022 shares of Biogen as of the end of the third quarter. Other gurus riding Biogen’s high profitability include PRIMECAP Management (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and the Vanguard Health Care Fund (Trades, Portfolio).



Shares of Kroger traded around $31.09, approximately 70.88{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} below the discounted earnings fair value of $106.76.


GuruFocus ranks the Cincinnati-based grocery store company’s profitability 7 out of 10: Even though operating margins are underperforming more than half of global competitors, Kroger has a 3.5-star business predictability rank and a return on assets that outperforms over 79{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global defensive retail companies.


Berkshire owns 24,978,439 shares of Kroger as of the third quarter, up 13.85{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} from the second-quarter holding.


Globe Life

Shares of Globe Life traded around $94.89, approximately 22.33{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} below the discounted earnings fair value of $122.17.


GuruFocus ranks the McKinney, Texas-based insurance company’s profitability 7 out of 10: The company has a 4.5-star business predictability rank even though returns and three-year revenue growth rates are outperforming just over 55{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.


Berkshire owns 6,353,727 shares of Globe Life as of the third quarter.


M&T Bank

Shares of M&T Bank traded around $128.35, approximately 20.73{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} below the discount earnings fair value of $161.91. Additionally, the company is modestly undervalued based on its price-to-GF Value ratio of 0.72.


According to GuruFocus, the Buffalo, New York-based regional bank’s cash-to-debt, equity-to-asset and debt-to-equity ratios are outperforming over 70{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} of global competitors.


Berkshire owns 2,919,613 shares of M&T Bank as of the third quarter, down 35.64{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} from the second-quarter holding.


Bank of New York Mellon

Shares of Bank of New York Mellon traded around $41.38, approximately 15.20{46dd52bca0123ad67b2d1222819e83fd0a56e45ca5068239f05f0c514f1e20f9} below the discount earnings fair value of $48.80. Additionally, the stock is modestly undervalued with a price-to-GF Value ratio of 0.73.


According to GuruFocus, the New York-based asset management company has several positive investing signs, which include a high Piotroski F-score of 7 and consistent revenue growth.


Disclosure: The author is long Biogen. The mention of portfolio trades reflects information as of the September 2020 portfolio date and do not include any trades and hedges made during October to December.

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About the author:

James Li

I am an editorial researcher at GuruFocus. I have a Master’s in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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