Welcome to Episode #77 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
Recently, Warren Buffett gave an interview on CNBC where anchor Becky Quick asked him about Bitcoin and cryptocurrencies.
He answered that he didn’t own any, wasn’t short any and would never have a position in them. Buffett then went on to say that they will come to a “bad ending” but he didn’t know when or how it would happen.
As you can imagine, he immediately came under attack from those in the crypto community for being out-of-touch, too old, and ignorant.
It’s nearly the identical response dot-commers had to his comments in the late 1990s.
Picking Winners in Emerging Technologies
When a new technology bursts on the scene, there are always dozens of competitors. After all, it’s seen as a gold rush and some people will get rich off of what is new.
In the 1800s, there were hundreds of railroads in the United States. But now, there are less than 10 big commercial railroad companies.
Similarly, there were thousands of automobile manufacturers and hundreds of domestic airlines when cars and airplanes came on the scene in the early 1900s.
But, again, today, the “winners” have won the contest. There are only a handful of big names in those industries. They are the survivors.
With cryptocurrencies and blockchain technology, it’s so new, there’s no way of knowing who the winners may be. Buffett’s strategy, then, is to simply avoid those emerging technologies until winners can be determined.
Investing in the Old-School Winners
Why not invest in those that have become the winners in the older industries?
These companies, some of whom have survived for nearly two hundred years, are clearly doing something right.
1. General Electric (NYSE:GE) is one of the original Dow Industrial components. Becky Quick asked Buffett about GE in their interview but he wouldn’t say, due to compliance issues, if he was buying now that shares have plunged. Is it even cheap enough? It still has a forward P/E of 18.3.
2. Masco (NYSE:MAS) makes plumbing parts like faucets, paints, cabinets and countertops. Founded in 1929, it now has a $14 billion market cap. Earnings are expected to rise 18% in 2018 after jumping about 29% in 2017.
3. Fortune Brands Home & Security (NYSE:FBHS) makes cabinets and plumbing, including the Moen brand, but it also makes doors and security devices such as padlocks by Master Lock. With a $10 billion market cap, it’s expected to see double digit earnings growth in both 2017 and 2018.
4. Sherwin Williams (NYSE:SHW) recently acquired Valspar and is now one of the largest paint manufacturers in the world. Founded in 1866 in Cleveland, it’s still producing double digit earnings growth all of these years later with analysts expecting earnings to pop 25.5% in 2018.
5. Deere & Company (NYSE:DE) traces its roots all the way back to 1837 in Moline, Illinois. This agriculture and construction equipment giant has had a few tough years as farmers cut back on their equipment spending but is turning it around with fiscal 2018 earnings expected to jump 22%.
Sometimes, for investors, the tried and true is just as attractive as the shiny and new.
What else should you know about why Buffett is avoiding bitcoin and thinks the market isn’t over valued?
Tune into this week’s podcast to find out.
Exclusive Buffett Report for Podcast Listeners
What 3 secrets drive the success of arguably the world's greatest value investor? Which 5 stocks might he buy right now if he weren't already a billionaire?
Today, podcast listeners are invited to download Zacks' Special Report, Invest Like Warren Buffett for free. At the same time, you may also look inside Tracey Ryniec's personal Value Investor portfolio to see more stocks at exceptional "discounts."
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