Twice a year, Standard & Poor's updates its Promising Growth Portfolio (PGP), a screen that uses criteria emphasized by legendary investor Warren Buffett (see BW Online, 2/10/06, "What Would Warren Do?"). The screen has had a pretty good track record. From its inception on Feb. 13, 1995, through Apr. 30, 2006, it had returned 440%, vs. 117% for its benchmark, the Standard & Poor's 500-stock index. Of course, the stocks on the PGP screen aren't necessarily ones that Buffett has bought or ever personally plans to buy.
And that got us to thinking. While we've had success selecting stocks by using Buffett's criteria, what about a screen drawing on the stocks he actually owns? For this week's list, we decided to combine Buffett's actual portfolio selections with some proprietary S&P rankings to get at the best of both worlds.
EXTRA ALLURE. We started with the roster of stocks currently owned by Buffett's company, Berkshire Hathaway (BRK.A). Then we put two S&P measures to work. We sifted the Berskshire-owned stocks for those ranked 4 STARS (buy) or 5 STARS (strong buy) by Standard & Poor's equity analysts. Stocks with those designations are expected to post total returns exceeding the total return of the S&P 500 index over the coming 12 months, and to rise in price on an absolute basis.
Then, to further enhance the attractiveness of the names on our list, we looked for those issues with a Standard & Poor's Quality Ranking of at least A-, indicating above-average earnings and dividend growth over the past 10 years.
When we ran the numbers, these six stocks emerged: