Wednesday, September 10, 2008

The Buffett Way

When baby and bathwater are getting tossed about it's hard to remain calm. But one man who we know is relishing this environment is Mr. WB. This is taken from an article in the StockAdvisors

For its size, Buffett’s portfolio has few stocks. But once a downturn comes, he buys millions of shares of solid businesses at reasonable prices. Berkshire is a major player in the markets for insurance, soft drinks, chocolates, shoes, jewelry, publishing, furniture, steel, energy, homebuilding and private jets.

Berkshire owns significant portions in well-known, cheap, dividend-paying stocks like Coca-Cola (NYSE: KO); Wells Fargo (NYSE: WFC); which is one of the few U.S. banks in good standing; Procter and Gamble (NYSE: PG), ConocoPhillips (NYSE: COP), Kraft Foods (NYSE: KFT) and others.

What is Buffett buying now? Besides buying large chunks of Swiss Re, a major reinsurer, Buffett has been buying unloved – but sound – financial stocks. He’s increased his position in the midwestern banking powerhouse, U.S. Bancorp (NYSE: USB).

Buffett is also buying more of Burlington Northern (NYSE: BNI), acquiring shares during the recent market weakness. Why is Buffett buying companies if the economic downturn, by his own admission, is likely to be deeper and longer lasting than generally expected?

Stockpickr also monitors his holdings. So what about his stocks, we take a look at some of them here:

His largest holding is in Coca Cola (KO). The stock has endured a controlled downtrend from its 2008 highs but has found demand around $50.

Wells Fargo (WFC) has acted like a heart attack victim in the current financial crisis. Perhaps investors see its true value as it emerged from the panicked decline of the first part of the year. Whether late 2007 buyers will be prepared to hold as prices creep towards breakeven remains to be seen.

Burlington Northern (BNI) has brushed off the concerns of 2007/08 with a beautiful uptrend. The initial pace of the trend up to 2008 has slowed but buyers appear ready to defend $94 or thereabouts. Can it survive? Or will it suffer when the broader market recovers?

Finally, NRG Energy (NRG) struggled to break past $48 after recovering 2006 losses. The recent rally stalled (much as it did for many stocks) when it entered the supply zone. Maybe demand will pick up around $26 down to $21 where buyers stepped in during 2006.

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Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website