Cheapness is a top characteristic
requires in companies he invests in, though they must also be
high-quality companies. It makes sense then that his portfolio
would contain quite a few
low-P/E (price over earnings) companies
. The lowest of the low are: General Motors Company (
), ConocoPhillips (
), Gannett Co. Inc. (
) and General Dynamics Corp. (
A low P/E ratio indicates that while a company's earnings have
grown or remained flat, the price has not, for any number of
reasons, and may later.
General Motors Company (
initiated a position of 10 million General Motors shares at an
average price of $25 in the first quarter of 2012. The company
has a P/E of 5.3, after a steady year-and-a-half P/E plunge:
GM, the world's top-selling automaker, just returned to public
trading on the NYSE in 2010, after filing for and emerging from
Chapter 11 bankruptcy, with the help of the U.S. government.
Then, GM posted the largest annual profit in its history for
2011, with earnings of $7.6 billion. But with the government
retaining almost 30% ownership, GM's stock price showed only a
mild reaction to the news.
In June, GM reported May sales were the highest monthly in 33
months. Consumers purchased 245,256 vehicles in the U.S., up 11
percent year over year, and the highest level since August 2009.
Buick and GM sales both were up 19%, and Chevrolet was up 10%.
GM also reinstated its missing dividend on June 12. The payment
will be $0.59375 per share quarterly on its Series B mandatory
convertible junior preferred stock.
Buffett has 29,100,937 shares of COP as of the end of third
quarter 2012, after whittling down the holding from its peak of
over 83 million in 2008. Its P/E is 6, a three-year low.
ConocoPhillips' P/E was around the high teens in 2010, then
dropped to the high single digits in 2011 and dropped further
still to the current level in the second quarter of 2012.
COP pe Interactive Chart
The recently smaller P/E came as a result of a recent stock price
drop. In late April, the price dropped from just over $70 to
about $50 per share on news that the company would have to pay
$266 million for a series of Chinese oil spills in early
Prior to that news, on April 4, the company announced it would
split into two by spinning of its downstream businesses and
remaining an upstream company. The distribution of one share of
Phillips 66 for every two shares of ConocoPhillips stock took
place on April 30, 2012.
On April 24, COP announced that its first-quarter earnings of
$2.9 billion were slightly down from $3.0 the previous year,
which coupled with the decline in stock price produced a low P/E.
Gannett Co. Inc. (
Gannett, a Buffett holding that predates 2007, is just 0.035% of
his portfolio. It has a 6.5 P/E, about the middle of its range
for the last several years.
GCI pe Interactive Chart
Though the newspaper stock has dropped more than 73% in the last
five years, it is up more than 5% for the year. After losing $1.8
billion in 2008, Gannett's earnings have remained relatively
even. It produced $355 million in 2009, $567 million in 2010 and
$459 million in 2011.
In the first quarter of 2012, Gannett's earnings fell 22.7% from
the prior-year quarter. The company's results were impacted by
spending on strategic investments and advertising softness. All
of its segments were profitable, with growth in broadcasting and
digital segments of 8% and 7%, respectively. Digital revenue
growth in its publishing segment rose 13%, highlighting its
efforts to push toward digital platforms.
General Dynamics Corp. (
Buffett owns 3,877,122 shares of General Dynamics at the end of
the first quarter 2012, a new holding in the third quarter of
2011. GD has a P/E of 8.6, after generally declining for the last
several years. Prior to the recession, GD sold for P/Es in the
GD pe Interactive Chart
Since 2008, General Dynamics' earnings have risen from $2.48
billion from $2.55 billion in 2011. For the trailing 12 months,
the period used to determine the P/E ratio, earnings are $2.498
billion, similar to 2008. While earnings have remained relatively
flat, the company's stock price has declined almost 19% in the
last five years, bringing down the P/E ratio.
A factor weighing on the stock of GD, the world's fourth-largest
defense contractor, was the uncertainty of the government's
military budget. In the first quarter, Jay Johnson, chairman and
CEO, said, "General Dynamics' first-quarter performance reflects
continued growth in our Aerospace segment as well as the
challenges presented by today's dynamic U.S. federal procurement
environment. We are continuing to see slower-than-anticipated
award activity, particularly relating to our IS&T programs
with validated requirements and approved funding,"
U.S. budget cuts of 10% over the next decade, or $52 billion per
year, go into effect Jan. 2, 2013, if Congress doesn't agree to a
deficit-cutting plan. This would include a $500 billion
"sequester" of the defense budget over the next five years.
The next Buffett stock holdings with low P/E ratios are Sanofi SA
), Bank of New York Mellon (
), Torchmark Corporation (
) and Intel Corporation (
See all of Warren Buffett's stock holdings at Berkshire Hathaway
(BRK.A)(BRK.B) here. Also check out the Undervalued Stocks, Top
Growth Companies and High Yield stocks of Warren Buffett.About
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