Warren Buffett Just Put $1.9 Billion in European Stocks… What Is He Buying?

Posted by Paul Mampilly, Daily Wealth

Warren Buffett is buying Europe…
On February 27, 2012, the most successful investor in history – and the world’s second-richest man – announced on CNBC that he had put $1.9 billion into eight European stocks.

I wasn’t surprised. In fact, I’d been expecting this for months. And I already have a hunch which stocks he bought… Buffett loves to buy big companies. Big companies are most likely going to survive 10, 20, even 50 years. Besides, with as much money as Buffett has, he has to buy big companies.
Buffett also loves to buy cheap. He defines cheap relative to future growth over a very long period of time. Buffett’s most famous investment is Coca-Cola. He bought up 7% of the company for around $1 billion in 1988. His shares in Coca-Cola are worth about $14 billion today. Buffett still loves the company. He hasn’t sold a share since he bought it.
Big branded companies like Coke don’t often sell at big valuation discounts. But on the rare occasion they do, you can usually count on Buffett to buy big.
And right now, dozens of potential Coca-Colas – big, well-known consumer-focused companies – are operating in the European market. The European debt crisis has caused stock prices to fall by nearly 40%. Many of these high-quality European stocks have fallen to compelling price levels.
That’s how I knew Buffett was looking at Europe. It’s a rare, irresistible opportunity for him to pick up excellent companies at good prices. And we should follow his lead…
It turns out, just doing what Buffett does beats the market. Between 1976 and 2006, if you simply mimicked Buffett’s buys, after he publicly disclosed his stock picks, you’d have blown away the S&P 500 by 11% per year. And during those years, following Buffett’s stock picks beat the S&P 500 index 27 out of 31 years. So you weren’t taking any more risk to get these results.
Now… Buffett didn’t disclose which European stocks he bought. Here’s what he said:
I just thought these eight companies were terrific companies that were cheap. These companies will do fine regardless of what happens in Europe – and there will probably be plenty that happens in Europe. And they obviously were affected by the European crisis. And in the end, those eight companies I bought are going to be there 5, 10, 20, 50 years from now.
So we can’t know for sure where Buffett put his money. But I have two likely names for you…
Nestle, a giant Swiss consumer-products company, fits Buffett’s profile perfectly. It makes baby food, chocolates, coffee, ice cream, and more. Its 10-year growth rate is 10%. And it gets 40% of its growth from developing countries.
Last year, the $200 billion company generated $9.5 billion in profits. It’s trading at about 16 times 2012 earnings. And it pays a dividend yield of 3.5%.
Another investment I’m sure Buffett likes is Danone. Based in Paris, Danone produces and distributes food products worldwide. It owns brands like Evian water and Stonyfield Farm. Danone’s 2011 growth rate was 6.5%.
Last year, the $33 billion company generated $1.874 billion in free cash flow. It’s trading for 15 times 2012 earnings. And it has a dividend yield of 2.75%.
You can buy both companies in the U.S. The ticker for Nestle is NSRGY. The ticker for Danone is DANOY. Many online brokers can also buy the stocks directly on European exchanges, though higher fees usually apply.
When Buffett files his first-quarter results with the SEC in May, we’ll get our first chance to see what Buffett bought in Europe. (If he’s still not done buying, he could delay disclosing his picks until August.)
I can’t guarantee Nestle and Danone are where Buffett’s put his money. But I know from studying his portfolio that these are exactly the types of companies he likes to buy. Both these companies have strong brands, they’re growing, and they’re going to survive 20, 30, or 50 years. And they both pay a steadily growing dividend.
If you’re looking to beat the market by double digits – like Buffett – you should consider putting Nestle and Danone into your portfolio.
Good investing,
– Paul MampillySource: Daily Wealth

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