Warren Buffett faces the dilemma of having to buy enormous positions in companies in order to generate returns that make any difference at his insurance behemoth, Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial). In his early days, he required a compound annual future earnings growth rate of 10% before he would buy a company, and had many fitting that profile to choose from. Now, size has limited his stock universe somewhat.
Buffett’s portfolio stalwarts include companies that continue healthy growth, in spite of size: American Express (AXP, Financial), Coca-Cola (KO, Financial), IBM (IBM, Financial) and Wells Fargo (WFC, Financial). These companies have the following five-year EBITDA per share growth rates, respectively: 19%, 8.8%, 9.5% and 33%. In 2012, Buffett added to his positions in Wells Fargo and IBM, and expects continued growth at all four. In his annual shareholder letter he wrote:
The earnings that the four companies retain are often used for repurchases – which enhance our share of future earnings – and also for funding business opportunities that are usually advantageous. Over time we expect substantially greater earnings from these four investees. If we are correct, dividends to Berkshire will increase and, even more important, so will our unrealized capital gains (which, for the four, totaled $26.7 billion at yearend).
Other companies within his portfolio are displaying rapid earnings growth, and Buffett (or one of his new portfolio managers – Ted Weschler or Todd Combs) has been increasing his positions in them, though they are still smaller positions. The companies are: National Oilwell Varco Inc. (NOV, Financial) and Suncor Energy Inc. (SU, Financial).
National Oilwell Varco Inc. (NOV)
Buffett began buying National Oilwell Varco in the second quarter of 2012, and has been buying shares each quarter since. As of June 30, 2013, he owns 8.88 million shares, with an average gain of 11%.
Oil and gas exploration company National Oilwell has a 10-year EBITDA growth rate of 28.4% — the highest growth rate company in his portfolio. Though the company’s average growth has slowed to 5.4% over the past five years, in 2012, it increased 18.9% from the previous year.
National Oilwell Varco designs and sells components for the oil and gas drilling and production industry. In the second quarter, it enjoyed significant demand that led to record backlog of capital equipment and international growth, in spite of weakness in Canada and the U.S. Revenues increased 6% year over year to $5.6 billion and earnings increased to $531 million from $502 million in the prior-year quarter.
Management also decided to return more of its earnings to shareholders. The company doubled its regular dividend during the quarter, to $0.26 per share from $0.13 per share.
Suncor Energy Inc. (SU)
Buffett established a position in Suncor Energy Inc. in the second quarter of 2013, buying 17,769,457 shares at an average price of $30. He has an average gain of 17% on the holding.
Suncor has an 11.4% EBITDA per share growth rate for the past 10 years. Growth has actually increased at the company more recently – its five-year growth rate is 16.5%.
Suncor is also related to the oil and gas industry. An integrated energy company, it develops and produces conventional oil and natural gas in Western Canada, the East Coast of Canada and internationally. The company also has a lubricants business, wind power projects and a biofuels plant, along with several other oil plays.
To continue its growth, Suncor plans to increase its market reach into the Canadian and U.S. coastal markets, and begin shipping on the Keystone South pipeline in early 2013, enabling it to transport heavy crude to the U.S. Gulf Coast. Another project to transport inland crudes to its Montreal refinery will be complete by the end of 2013.
“With more than 600,000 bbls/d of existing and planned transportation capacity, we're strategically positioned to capture global prices on both our current production and future growth," said Steve Williams, Suncor president and chief executive officer, in the company’s second quarter financial report.
A significant portion of its growth plan centers on near term higher return oil sands debottleneck projects and longer term offshore, in situ replication and PFT mines, according to its investor presentation.
In the second quarter, Suncor reported net earnings of $680 million, an increase from $324 million in the previous year quarter. Second quarter revenue was virtually flat at $9.34 billion, compared to $9.348 billion the previous year quarter.
Suncor’s historic revenue and earnings history:
Others
For further research, Buffett has several other growth companies in his portfolio that he has chosen to diminish his holdings in. Drug manufacturer GlaxoSmithKline PLC (GSK, Financial) has a 0.08% weight in his portfolio and a 10-year EBITDA growth rate of 9.1%. The second quarter marked the first time in many years he reduced his position in the company. He sold 2.28% of his shares, retaining 1,476,021.
Ratings agency Moody’s (MCO, Financial) has also begun occupying a smaller slice of his portfolio, in spite of a 6.1% 10-year EBITDA growth rate. Buffett reduced his holding by 12.29% in the second quarter. This marked the first sell since the fourth quarter of 2010, before which time he sold more frequently:
Buffett maintains a 24,922,178 share position in the company as of the second quarter 2013, and an average gain of 122% on the holding.
To see more of Buffett’s high-growth companies, download his GuruFolio report on his profile page. Also, visit his portfolio here.
Buffett’s portfolio stalwarts include companies that continue healthy growth, in spite of size: American Express (AXP, Financial), Coca-Cola (KO, Financial), IBM (IBM, Financial) and Wells Fargo (WFC, Financial). These companies have the following five-year EBITDA per share growth rates, respectively: 19%, 8.8%, 9.5% and 33%. In 2012, Buffett added to his positions in Wells Fargo and IBM, and expects continued growth at all four. In his annual shareholder letter he wrote:
The earnings that the four companies retain are often used for repurchases – which enhance our share of future earnings – and also for funding business opportunities that are usually advantageous. Over time we expect substantially greater earnings from these four investees. If we are correct, dividends to Berkshire will increase and, even more important, so will our unrealized capital gains (which, for the four, totaled $26.7 billion at yearend).
Other companies within his portfolio are displaying rapid earnings growth, and Buffett (or one of his new portfolio managers – Ted Weschler or Todd Combs) has been increasing his positions in them, though they are still smaller positions. The companies are: National Oilwell Varco Inc. (NOV, Financial) and Suncor Energy Inc. (SU, Financial).
National Oilwell Varco Inc. (NOV)
Buffett began buying National Oilwell Varco in the second quarter of 2012, and has been buying shares each quarter since. As of June 30, 2013, he owns 8.88 million shares, with an average gain of 11%.
Oil and gas exploration company National Oilwell has a 10-year EBITDA growth rate of 28.4% — the highest growth rate company in his portfolio. Though the company’s average growth has slowed to 5.4% over the past five years, in 2012, it increased 18.9% from the previous year.
National Oilwell Varco designs and sells components for the oil and gas drilling and production industry. In the second quarter, it enjoyed significant demand that led to record backlog of capital equipment and international growth, in spite of weakness in Canada and the U.S. Revenues increased 6% year over year to $5.6 billion and earnings increased to $531 million from $502 million in the prior-year quarter.
Management also decided to return more of its earnings to shareholders. The company doubled its regular dividend during the quarter, to $0.26 per share from $0.13 per share.
Suncor Energy Inc. (SU)
Buffett established a position in Suncor Energy Inc. in the second quarter of 2013, buying 17,769,457 shares at an average price of $30. He has an average gain of 17% on the holding.
Suncor has an 11.4% EBITDA per share growth rate for the past 10 years. Growth has actually increased at the company more recently – its five-year growth rate is 16.5%.
Suncor is also related to the oil and gas industry. An integrated energy company, it develops and produces conventional oil and natural gas in Western Canada, the East Coast of Canada and internationally. The company also has a lubricants business, wind power projects and a biofuels plant, along with several other oil plays.
To continue its growth, Suncor plans to increase its market reach into the Canadian and U.S. coastal markets, and begin shipping on the Keystone South pipeline in early 2013, enabling it to transport heavy crude to the U.S. Gulf Coast. Another project to transport inland crudes to its Montreal refinery will be complete by the end of 2013.
“With more than 600,000 bbls/d of existing and planned transportation capacity, we're strategically positioned to capture global prices on both our current production and future growth," said Steve Williams, Suncor president and chief executive officer, in the company’s second quarter financial report.
A significant portion of its growth plan centers on near term higher return oil sands debottleneck projects and longer term offshore, in situ replication and PFT mines, according to its investor presentation.
In the second quarter, Suncor reported net earnings of $680 million, an increase from $324 million in the previous year quarter. Second quarter revenue was virtually flat at $9.34 billion, compared to $9.348 billion the previous year quarter.
Suncor’s historic revenue and earnings history:
Others
For further research, Buffett has several other growth companies in his portfolio that he has chosen to diminish his holdings in. Drug manufacturer GlaxoSmithKline PLC (GSK, Financial) has a 0.08% weight in his portfolio and a 10-year EBITDA growth rate of 9.1%. The second quarter marked the first time in many years he reduced his position in the company. He sold 2.28% of his shares, retaining 1,476,021.
Ratings agency Moody’s (MCO, Financial) has also begun occupying a smaller slice of his portfolio, in spite of a 6.1% 10-year EBITDA growth rate. Buffett reduced his holding by 12.29% in the second quarter. This marked the first sell since the fourth quarter of 2010, before which time he sold more frequently:
Buffett maintains a 24,922,178 share position in the company as of the second quarter 2013, and an average gain of 122% on the holding.
To see more of Buffett’s high-growth companies, download his GuruFolio report on his profile page. Also, visit his portfolio here.
