A tech stock to own now

A tech stock to own now

You may know this company for its stock that soared, then collapsed. It won't ascend like a rocket again, yet it should hold plenty of appeal for conservative investors.
[Related content: stocks, technology, EMC, earnings, Jon Markman]
By Jon Markman
MSN Money

If you tweet or use Facebook, e-mail or instant messaging, you are to blame for creating the largest pile of permanent waste in the history of mankind. Nice going.

Never mind that your messages are ethereal wisps of digits and electrons and that 99% of them are useless a few seconds after they are created. They are 0s and 1s that will be stored on some disk drive somewhere whether you want them or not, ready to be retrieved by your grandkids, prosecutors and historians for all eternity.

A slew of companies have emerged in recent years to manage all of this digital excess, but one stands head and shoulders above the rest. And, amazingly, it is what investors call a "fallen angel," a once-great outfit that has fallen on hard times and yet has the capacity to rise again.

That company's shares may be the one stock that conservative investors need to own for the next few years, particularly those who are a little shy about the rapid recovery in share prices and the uncertainty of the global economy. Its value is already so bombed-out that everyone who wanted to sell it has fled, and now it's owned mostly by new investors who have taken a shine to its slightly scuffed appearance and are ready to dream again about how great it can be.

The company is data-storage specialist EMC (EMC, news, msgs), and I know it's going to be familiar to a lot of people, for good and for not-so-good reasons. Here's why it's so notorious, and why it is such a good bet now.
'90s nostalgia
During the 1990s, which I believe we are about to repeat, EMC shares put in one of the greatest advances in market history. The stock rose 65,450% from January 1990 to December 1999. Ten thousand dollars invested at the start of the decade was worth $6.5 million at the end, if you'd had the foresight and patience to keep it through booms and busts. Which, let's face it, would have been tough. I don't know about you, but every time I have a 10,000% gain, I feel like taking profits.

What happened next at EMC was not a unique story. Excessive optimism crept into entrepreneurs' animal instincts, so new competitors crowded into its space with lower-cost offerings, and the ensuing price war crushed its profit margins. EMC, which was always known to have one of the best sales forces on the planet to go with its great product offerings, managed to annihilate those latecomers with brusque dispatch, but the damage was done: Once the pricing genie is out of the bottle, it's almost impossible to stuff it back in.

So after that amazing decade, EMC shares began a breathtaking collapse. And now, the once-godlike stock has tripped on leaden feet to fall 80% since the start of this decade. At the stock's peak, expectations got so out of whack with reality that investors were willing to pay more than 100 times earnings -- a superhigh price-earnings multiple of 125. But in the multiyear collapse, those expectations dwindled into a pit of despair, until the P/E multiple hit 10 in February. It's now around 18, based on my estimate of next year's earnings.

That is very cheap for a company of this caliber with potential to grow 20%. You see, companies such as Procter & Gamble (PG, news, msgs) get a forward-looking P/E of 14, and the detergent maker is not going to grow much more than 5% next year, if that much.

EMC may be tarnished, but it has already begun to sparkle a little bit in a few corners. What will make it worth your hard-earned dollars over the next few years?

Expectations are still fairly low, which is always the key to future success in the market. Most analysts expect the company to earn 84 cents a share next year, which would amount to fantastic 32% growth over 2009. But I actually think that's too low coming out of a very low base and that the company has a very good shot at earning $1.10 a share next year.

Growing again, steadily
Here's why EMC will grow: All indications from the marketplace suggest the company enjoyed a very solid September with its elite roster of Fortune 100 customers with stiff data-storage needs, which will allow it to report better-than-expected results Oct. 22. And reports from the field also suggest that the current quarter has already started off with a bang, as customers are finally loosening budgets that were severely tightened during the recession and replacing old equipment with the technology that will permit improved retrieval of every work, play and medical twitch of your increasingly digital lives.

That's the long-term picture. Short-term results will be driven by better gross margins (net income before taxes) due to manufacturing efficiencies and a lower cost structure in the wake of head-count reduction of 7%, around 2,400 EMC workers. Analysts estimate that every 1% reduction in operating expenses results in 2 cents per share to the bottom line.

Both of these elements are important, but the biggest boost will come from better sales, because a company like this needs to keep innovating and creating more reasons for customers to pick up the phone and buy its equipment.

EMC has used the recent fallow period to become the leader in a niche called network-attached storage, which was just a small part of its business five years ago. It has since muscled its way past smaller rivals to become the top vendor, with 36% market share -- about 5 percentage points more than its top competitor, according to calculations from analysts at Broadpoint AmTech.

The majority of its revenue in the storage-area-network space comes from its high-end Symmetrix line, which provides companies with faster access to data because it utilizes solid-state drives with an industry-leading reliability promise of 99.999% -- known as the five nines standard.

And, finally, EMC has retained a large stake in VMware (VMW, news, msgs), a spun-off unit that sells the hottest infrastructure enhancement going for companies trying to save money today: virtualization software. Because most computer servers at companies normally run at a lousy utilization rate of 15%, this software allows them to get more computing power for less money -- the key selling point. VMware is virtually the only company that Fortune 100 companies use for this service, and EMC owns 83% of it.
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Skeptics will say that EMC has seen its best days and that growth will be modest going forward -- and I don't disagree. This is not going to be one of those stocks that rockets 100% a year over the next couple of years, like some of the recommendations I made earlier in the spring and summer.
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But we're talking about one tech company that can still grow 15% to 20% a year and has the potential to see its price-earnings multiple expand by 5% a year because the need for storage is the only thing in technology that is truly growing exponentially. And that's thanks to all those tweets, Facebook posts, e-mails and instant messages that I mentioned a moment ago -- not to mention the Obama administration's lust to put all medical records in a digital format in the next half-decade.


Figure that EMC, now trading around $18 a share, can get back to about $35 over the next three years with any kind of tailwind from the improving global economy, back to where it traded in 2001. Its rivals IBM (IBM, news, msgs) and Hewlett-Packard (HPQ, news, msgs) have already made that journey, and as long as you keep creating data, it'll keep creating profits.
Fine print
Check out EMC's products and services here and here. Learn more about Broadpoint AmTech here. Learn about virtualization software here. . . . It's great to see the casinos charge back after their weak spring. On May 14, I recommended Las Vegas Sands (LVS, news, msgs) and Multimedia Games (MGAM, news, msgs) around $8 and $2.75, respectively. (See "In an economic desert, signs of life.") They closed Friday at $18.05 and $5.02. . . . For more ideas like this as the market rally progresses, check out my daily newsletter, Strategic Advantage (membership required).

At the time of publication, Jon Markman owned shares of the following company mentioned in this column: Hewlett-Packard.

Charts Will Save You A Fortune

These Three Charts Will Save You A Fortune
By: Tom Dyson
Contributing Editor
Daily Wealth

Published: October 5, 2009

Russell Napier, a well-known stock market historian, studied market tops and bottoms over the last 100 years and showed corporate bonds tend to lead the stock market by several months at important turning points.

When this bond fund starts falling, you should exit the stock market, but until then, you have a green light to speculate...

LQD has turned lower in the last four trading sessions. Please keep an eye on this chart. If it breaks below 103, immediately exit the stock market. A large decline may be imminent.

LQD isn't the only indicator I follow to track the health of the market. I also watch the British pound...



The British pound is one of the most important financial indicators in the world. Britain was at the epicenter of the credit crisis. It had a huge housing and mortgage bubble... even bigger than the housing bubble in the U.S. Britain also had a huge banking and finance bubble. In this bubble, London became the world's largest financial center. Finance represents almost 10% of Britain's GDP.

In other words, the pound is the perfect symbol for housing and financial excess. When the pound is rising, it means the pain is subsiding and the storm clouds are breaking. When the pound is falling, financial misery is increasing.

Here's the chart of the pound. On Friday, the pound broke down to new four-month lows.

Here's another bearish development. Commodities are falling in terms of gold...

Gold is a safe haven. People turn to gold when they're afraid of financial chaos. But when they're optimistic, people use more energy, eat more food, and live in bigger houses. These activities require industrial commodities like oil, copper, aluminum, and corn.

So the relationship between gold and industrial commodities is an excellent barometer of fear and greed in the stock market. When commodities fall against gold, there's fear in the air. But when they rise against gold, people are growing optimistic.

This chart shows the price of gold set against the CRB Index of commodities. This barometer led the stock market by three weeks in March, when the bull market started.

In September, the commodity-gold ratio broke down to a new four-month low. It hasn't made a new low for three weeks. But watch this one. There may be misery coming in the stock market if it makes a new low...

If you invest in the stock market, you need to follow the performance of these three charts. They're among the best gauges of fear and greed in the market. As their prices go, so goes the stock market.

Right now, these charts are hinting at a new downtrend. My advice, hold off on making new buys, cut your most risky positions, and tighten your stop losses.

-- Tom Dyson
Contributing Editor

Now if only I knew this then Rules to avoid a bear

Rules to avoid a bear
First is the fact that bad things happen in bear markets. The Sept. 11, 2001, attacks happened after a bear market was well under way. The Great Depression happened after a bear market had begun. The collapse of Lehman, Bear Stearns, Washington Mutual, Fannie Mae and Freddie Mac all happened during a bear market. The Nixon impeachment hearings that helped kill the market in 1974 happened during a bear market. So really, the first order of business is to avoid the bear.
This is easily done using one very simple timing rule that I have recommended often in the past, as it has worked for at least the past 60 years: Get out of the market when the Standard & Poor's 500 Index ($INX) ends a month at a level below its 12-month average. Don't return until it closes a month above the one-year average. Using this rule, you were out of the market after December 2007 at 1,468 on the S&P 500, and did not return until after July, at around 987. You're not out at the top or in at the bottom, but you still avoid a 32% collapse. If you want to get out and in sooner, with slightly higher risk, use the 10-month moving average instead; in the present case, you'd be out on Dec. 1, 2007, and back in on June 1, 2009.
Using this simple rule, the Lehman collapse was just a curiosity for you rather than a calamity. As for individual stocks, Clews' cane approach is less straightforward. You cannot buy right away, as panics are seldom over quickly. In most cases, you can wait at least a few weeks after an event that's large enough to break out of the financial news section onto the front page of newspapers, because you must wait for negative psychology to jar the shares of the most-admired companies out of the hands of suddenly frightened longtime holders. As a rule, my research shows that the stocks you buy should be at least 40% off highs immediately prior to the start of the emotional event.
Many famous companies fit this description in the two months after the Lehman collapse, and almost all are much higher now. IBM (IBM, news, msgs) fell to 40% off its pre-Lehman high at $72 in November; it's close to $120 now. Amazon.com (AMZN, news, msgs) was 40% off at $51 in October; it's around $80 now. DuPont (DD, news, msgs) fell 40% to $25.50 in November; it's around $31 now. Cisco Systems (CSCO, news, msgs) fell to $14.40 in November; it's about $21 now. Goldman Sachs (GS, news, msgs) dropped to $53 in October; it's $163 now. The 40% rule works in most cases of severe panics. Buying will feel so wrong at the time, but if you want to get well ahead of the crowd at emotional lows, you must accept the risk when others shun it.
No downturn on the horizon
I'm telling you this not to be a smart aleck, but to help you prepare for next time. And there most definitely will be a next time within our lifetimes. I do not think, though, that it will be as soon as the bears would have you believe. Every time that a 12-month-average buy signal has been given after a bear market of a year or more, the ensuing up move has itself lasted at least a year -- and more often three or four.

The primary reason: The government and central bank response to a calamity like the Lehman Bros. collapse and panic is typically so powerful and over the top that the monetary infusion cycle -- fiscal stimulus and superlow interest rates -- that ensues is much more persistent than anyone expects.

Robert Drach, a veteran analyst who has been researching these cycles for the past 40 years from his base in Florida, believes that the current monetary infusion cycle will exceed the last similar one that extended roughly from 1991-99. He's expecting that the major indexes will ultimately advance at least 450% from their lows, which would put the S&P 500 at 3,000 in the next 10 years. See you then.

The house that Jack built

The house that Jack built
Commentary: Time is on your side, Vanguard's Bogle tells investorsBy Chuck Jaffe, MarketWatch

On whether investors should be upset with fund managers, financial advisers or both:

"Defeat has 1,000 fathers. We really don't have much choice but to trust the investor to make his own asset allocation, with or without the help of a financial adviser. I don't think you can expect the fund manager to do it. ... Letting one fund manager decide for all investors how much to have in stocks or cash doesn't really seem to work for most investors. There are not many managers who can do it, for starters, but it's just impossible to know the needs.

"You have to be prepared to take the bad times with the good. There are a lot of good active managers who failed last year -- Longleaf, Marty Whitman {Third Avenue funds], Dodge & Cox, Weitz -- and if you are going to be with an active manager and have found someone who has the values you believe in and who is in the investment business and not the marketing business, then go with it but be prepared to lose one year out of three. I think most investors can't handle that; they are their own worst enemies.

"But advisers don't help this, I think. They hold a magnifying glass up to the worst of things. You say 'God I have to get out of here,' and they say 'Go now' instead of saying 'Stay the course.'"

an old forbes article on Irwin Yamamoto

Irwin Yamamoto: Maui Wowie Nikhil Hutheesing, 02.18.03, 2:00 PM ET


Irwin Yamamoto

Hawaiian born, Irwin Yamamoto, editor of the Yamamoto Forecast, doesn't like publicity, and he will give little details about the success of his newsletter. We do know that Yamamoto, 47, picks stocks from downtown Kahului on the island of Maui, and, according to Timer Digest, his market-timing signals were up 45% in 2002. His success, he says, comes from being a contrarian. As the threat of war with Iraq increases, many advisers recommend fleeing stocks and investing in gold. Yamamoto says to do the opposite.

Forbes: We are on the verge of going to war with Iraq, yet in your latest newsletter you recommend 100% investment in stocks. Why?

Sign up for Forbes' Free Investment Guru Weekly e-mail.
Yamamoto: Right now, everything is about the war. What do I think will happen? I think that it will either be a quick war or, at the very last moment, Saddam will go into exile. So I'm bullish on stocks because I think the market is overreacting. Look at what happened in the Gulf War. As soon as bombs started falling and the market sensed victory, there was a rally. I think the market is currently oversold--on a short-term basis. On a long-term basis, it is still pricey.

So you aren't a long-term bull, just a short-term bull?

Right. This won't be the start of a bull market, but rather it will be a significant, tradable rally. Current price-earnings ratios and book values are too high for a bull market to start. But because of short-term worries about war, the overhead resistance to stocks will be removed. So there will be a chance for profit taking.

When war isn't the overriding concern, how do you pick stocks?

I follow three indicators: fundamental, technical and market sentiment. In the beginning of January, my long-term indicator was bearish. But by the end of January, I changed it to bullish. I turned out to be right. Stocks were heading up until mid-January, then they began coming down. When we had that initial advance, I thought the rally wouldn't last, so I turned negative. I still think the market is waiting for war. But to take a longer view, the war factor has already been priced in and is largely discounted.

So give me some examples of what you look at before you buy a stock?

I look at technicals. Because of the fast decline in January, on a short-term basis the market is oversold. But even if there is no war, I think there will be a reflex rally, a technical bounce. Throw in the fundamentals. Once problems are removed, there should be a rally. Now consider sentiment. Everyone is saying not to touch stocks now. I go to the Borders bookstore here and check Barron's out on Sundays. It always correlates. During the dot-com bubble, the newspaper was always sold out. Everyone was buying, and you know what happened.

Now, because of the war, no one is interested in stocks, and there are plenty of issues of Barron's on sale at Borders. When I invest, my question is, "Have people heard any favorable news lately about this company?" If the answer is yes, I don't buy the stock because I would be paying a premium for it. So I look companies that are hated. I think brokerage stocks fit in that category.

Continued on next page

You are 100% in stocks right now. Which companies do you like now?

The companies I am buying I like on a short- and long-term basis. A.G. Edwards has a spotless reputation and no debt. It is a big regional brokerage firm and a possible takeover candidate. Also, along the same lines is Raymond James. Even if these two are not taken over, they can stand well on their own. I also like Walt Disney. The stock is close to its lows, and when there is a perception that the economy is recovering, advertising will pick up. I recommend Japan Equity Fund because if there is a recovery in the U.S., that will help Japan in terms of exporting goods to the U.S. Japan is on the verge of a major financial change. Once the news is out about the major restructuring changes in Japan and the cleaning out of bad loans, Japan's market will soar.

Playboy is another great buy. You won't get a free subscription as a dividend, but management has said that the next year will be a profitable one. The stock is worth $30, but you can buy it now for $9.50. Alexander & Baldwin is another company I really like. It has over 90,000 acres of Hawaiian land, so it's a great asset play. The stock yield is 3.5%--a great dividend, especially if it's tax-free. Then, Wall Street will be attracted. On a conservative basis, I think the stock is worth $35 to $40, yet it is selling at just $25. So you get the yield while you wait for the price recognition.

What about investing in oil, bonds and precious metals?

As a contrarian, I was into gold and oil when it was low. Remember, buy low, sell high. Oil is high, so I'm selling it. I think when the war starts, in the first hour or so the price of oil and gold will plunge, especially if it looks like it'll be a quick war. In the Gulf War, American markets were closed when the war began. The gold and oil markets continued to surge, but before the U.S. market opened the next day, oil and gold plunged in price because a quick victory was viewed.

As for bonds, right now, bonds are also used as a safe haven. But by the second half of this year there will be an economic recovery, so the multiyear bull market in bonds is practically over. Good news in the economy is bad for bonds, and soon people will think the economy can recover. Then, bonds will sell off, and people will move into stocks.

But many advisers take a different view. They think that gold shares should continue to do well, especially since the current uncertainties remain.

We are at the top of the gold market now. Uncertainty is favorable to gold, but it will be removed within a matter of weeks.

Yes, but gold was showing strength even before talk of war with Iraq. And there are many other factors that are positive for gold, such as weak currencies, the Fed's monetary policy and inflation pressures.

Before the talk of war, gold was going up because of supply and demand and the weakness of the dollar. But over the last month or so, many of the gains have been directly related to the uncertain situation with Iraq. So if things look good with Iraq, gold investors won't be worried about the recession or soft dollars. That's why I think the best opportunities right now are in stocks.

Thank you.

More Adviser Q&As

Maui tortoise stopped on bear-market rally

Maui tortoise stopped on bear-market rally

By Peter Brimelow, MarketWatch
Last update: 12:04 a.m. EDT May 7, 2009Comments: 10NEW YORK (MarketWatch) -- The Maui Tortoise is further out of his shell. But not far, and he's not coming any further.
I call Hawaii-based Irwin Yamamoto of The Yamamoto Report the "Maui Tortoise" because, in the age of the Internet, he still publishes only monthly, by snail-mail, and appears to have no Web site.
Who does he think he is, Charles Allmon? ( See April 30 column.)
Very few investors or editors can sit still for this length of time, especially with markets as volatile as they have been recently. But long study of the Hulbert Financial Digest market-letter-monitoring data has led us to the conclusion that both infrequent trading and hyperactive trading can be equally successful -- in the right hands. (Equally, virtually every known market method can work -- again, in the right hands.)
Yamamoto appears to have the right hands. He was one of the few services to make money during the Crash of 2008. ( See Oct. 29, 2008, column.)
Over the past 12 months through April, Yamamoto is up 21.32% by Hulbert Financial Digest count, compared to a 34.69% loss for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over 2009 to date, Yamamoto is up 14.3% versus a negative 1.16% for the total return Wilshire 5000.
Yamamoto says he's been publishing since 1983, but Mark Hulbert only began following him in at the beginning of 2002. Over that time, Yamamoto has achieved a 14% annualized gain, compared to a negative 0.6% annualized for the total return Wilshire.
Significantly, both Yamamoto's stock selection and his pure timing beat the market. A portfolio that switched between the Wilshire 5000 and T-Bills on his short-term signals gained 2.7% annualized from 2002 through April, in contrast to a 0.6% annualized loss for buying and holding. A portfolio that relied on Yamamoto's long-term signals to switch between the DJ Wilshire 5000 and T-Bills gained 5.5% annualized over this same period.
Yamamoto recently began buying stocks for the first time in a considerable period. ( See March 12 column.) He is now 35% invested.
And that's enough, he says in his latest letter. He is solidly in the camp that views the recent rise as a bear-market rally.
He writes: "Today, investors are truly spoiled. Prior to the current bear cycle, people experienced a spectacular bull run from 1982 to 1999, or 18 years. ... Furthermore, in recent years, bear markets have been cyclical in scope. The last four bearish periods were measured in months, not years. The longest one was only 10 months. As we previously stated, market participants are taking things for granted."
Yamamoto's unpleasant conclusion: The last two secular bear cycles were 13 years and 16 years in duration. The average: 14.5 years. If equities topped out back in October 2007, then it would be the year 2021 or 2022 before this bear market is completed. ... Even if the length of the downside is shorter than the most recent secular cycles, it should be a lot longer that the previous cyclical downturns."
Yamamoto doesn't offer much rationale for his bearishness, although he says flatly that Obama's efforts to reflate will end in disaster:
"Do not misunderstand us, inflation is not today's enemy. On the contrary, deflationary forces continue to permeate the business environment. Yet in the effort to escape the grips of deflation, the government seeks to reflate the economy back to health. In a few years, hyperinflation will replace deflation as the threat."
Seemingly not now, however. Yamamoto is bearish on gold, short term.
The Yamamoto Forecast just snailed in, and I don't like to reveal portfolios until subscribers have gotten a look. This case is unusual, however: Yamamoto is basically unchanged since my March 12 column, just slightly more invested. He continues to be 5% exposed to Rydex Juno Fund Inv (RYJUX:RYJUX
reflecting his view that bonds will break.
Yamamoto's address, a service to readers who will otherwise email me saying they can't find him online, is: P.O. Box 573 Kahului, HI 96733

5 Buffett Picks at a Discount

5 Buffett Picks at a Discount
This story is an edited version of the original, which appears in the May issue of SmartMoney Magazine. Berkshire Hathaway has its annual meeting Saturday, and is expected to draw 35,000 attendees.

Warren Buffett usually attracts as much public criticism as, say, puppies or Santa Claus. He filed his first tax return at 13 (bicycle deduction: $35), amassed an investment fortune of more than $60 billion by the end of 2007 and has committed most of his wealth to charity. He lives in the same Omaha house he bought in 1958 and argues that people like himself don’t pay enough in taxes.

But Buffett’s stock picks, like just about everything else, tumbled over the past year, and some on Wall Street are grumbling. U.S. stocks fell another 28% after Oct. 16, when Buffett penned a New York Times op-ed piece titled “Buy American. I Am.” The Oracle bet especially wrong on banks and oil over the past year. And after calling derivatives “time bombs” and “financial weapons of mass destruction” in a 2002 letter to shareholders, Buffett noted earlier this year Berkshire Hathaway (BRK.A: 94900.00, +400.00, +0.42%) had 251 derivatives contracts outstanding. Mostly, it had written insurance against the stock market falling, which, of course, it had.

Some critics say Berkshire is suffering from mission creep. Others say buy-and-hold investing is dead. I’m guessing it’s not. I’m guessing that while Buffett admits he made some bad bets over the past year, he made plenty of good ones, too. Some things he bought are selling for well less than he paid, and some long-standing names are newly cheap. So if you ever wanted to mimic the master without paying a Buffett premium, now seems a fine time.

After all, consider the long-term record. When Buffett took control of Berkshire in 1965, it was a withering textile firm with $19 a share in book value—roughly what accountants figure its assets could raise in a sale. At the end of 2008, book value stood at $70,530 a share. That’s a yearly compounded increase of more than 20%, more than double the broad stock market’s annual return during that stretch. Berkshire’s book value has shrunk in only two years during Buffett’s tenure, by 6.2% in 2001 and by 9.6% last year. Of course, Berkshire’s trading price is based as much on what investors see as its earnings power as it is on what the firm might fetch in a liquidation sale. Generally, the stock trades at a big premium. Over the decade ended 2007, it went for 70% more than book value. Now it sits just 30% above it.

As for derivatives, Buffett has said they’re dangerous but not necessarily evil (comparing them to uranium, which can be used for bombs or electricity). When the put options he wrote come due starting in 2019, he said in a March CNBC interview, even if the stock market is 15% below where it was when he wrote the contracts, he’ll still breakeven and will have enjoyed the use of $5 billion in customer cash in the interim. And while that New York Times headline might have been an early call, writers (readers can never be reminded enough) generally don’t write headlines. While Buffett said he’s buying stocks, he also wrote that he didn’t have the “faintest idea as to whether stocks will be higher or lower a month—or a year—from now.”

Truthfully, though, I’m more interested in exploiting Buffett than defending him. The shortest path to being a great investor is to copy one. Berkshire shares might be a good deal, but the firm has a giant stake in financials. Investors who prefer to avoid that can simply cherry-pick from its holdings, which are reported quarterly. To find the names below, I trolled Berkshire’s statements for purchases and for companies Berkshire was sticking with, but not for ones like Johnson & Johnson (JNJ: 54.21, -0.15, -0.27%) and Procter & Gamble (PG: 50.84, +1.05, +2.10%), which Buffett says he still likes but that Berkshire has trimmed its stake in to make room for new purchases. I also looked for purchases of common shares available to the rest of us, ignoring privately negotiated deals with companies like General Electric (GE: 13.67, +0.57, +4.35%) and Goldman Sachs (GS: 139.22, +4.02, +2.97%), which secured Berkshire fixed returns and upside potential.


Beating Buffett at His Own Game
Company Ticker Industry Avg. Prices Paid (Est.) Current
Price

Burlington Northern BNI Railroad $75 to $80, summer 2007 through early 2009 $67.48
Eaton ETN Industrial Products $44 in late 2008, $71 in fall 2008 43.80
ConocoPhillips COP Oil & Gas $49 in late 2008 41.00
Kraft KFT Packaged Food $30 in early 2008, $33 in late 2007 23.40
NRG Energy* NRG Utility $21 in late 2008, $35 in fall 2008 17.98
* A $5 billion takeover proposed by Excelon (EXC) is under review.


Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."