Warren Buffett Stocks: Warren Buffett’s Top 3 Stock Picks For 2016

12004115_10153059619656892_2200422831982175336_nEver Haggiag is a Financial Analyst Intern at I Know First

 

 

Warren Buffett Stocks

Executive Summary

  • Pick #1: National-Oilwell Varco, Inc. (NOV)
  • Pick #2: Cigna Corporation (CI)
  • Pick #3: Moody’s Corporation (MCO)
  • I Know First’s Algorithm Is Bullish on all of them

Warren Buffett's Top 3 Picks For 2016

Image source: Insider Monkey


National-Oilwell Varco, Inc. (Pick #1)

National Oilwell Varco, Inc. (NYSE: NOV), with a market cap of 11249.96 is seen as one of the key stocks in today’s market. We can take a look at its P/E ratio coming in at 9.1 with a forward P/E of 20.44, indicating that the company’s finances are very healthy. With a P/S value of 0.63, its P/C is valued at 6.09. This allows investors to look at the company’s value against the P/E ratio. Their high current P/C proves the company is able to generate cash relative to its stock price rather than what it records as earnings.

The latter is known for yielding high dividends, indicating the significance of the relationship the company maintains with its investors. This year’s dividend to shareholders came in at a 6.15% yield with a payout ratio of 55.60%. Some investors criticize such high dividend yields stressing that the company should reinvest earnings into its business to grow further. Income-oriented investors are very satisfied with the generous dividend yields and maintain high investments in the company.

Warren Buffett Stocks

(Source: fastgraphs.com)

Recently released EPS values came in at 3.29, measuring the company’s EPS growth this year at 12%. The company reported good sales growth over the past 5 years coming at 11% prompting many analysts to set high price targets for NOV coming into 2016. One of the price targets reported by Morgan Stanley was $39.13 considering the stock currently trades at $27.60.

NOV has and ROA of 4.30%, and an ROI of 10.80%. Looking at these numbers investors can deduce that the company is a good investment based on the numbers. We believe that with current market conditions anything can happen on the short-term although NOV boasts good fundamentals, and we believe the stock to be overweight in the long-term.

Cigna Corporation (Pick #2)

We looked at the hedge fund sentiment and insider sentiment in order to get an outlook on the stock. Hedge funds are increasingly positive on the stock as the number of hedge fund positions in the stock went up from 42 at the end of the fourth quarter of 2015 to 50 towards the end of the year. Hedge fund sentiment is strongly positive for this stock.

Taking a look at their 13F filings, which are used to determine the top 15 small-cap stocks held by a few hedge funds we keep under the algorithm’s watch. After looking at the filings extensively it is noticed that more and more funds were buying this particular stock. On top of this, it can also be noticed that Cigna just today was upgraded to “buy” at Jeffries, releasing a price target of $172.36.

Cigna just recently announces attendance at J.P Morgan’s annual conference for healthcare. We believe this event will be a catalyst in how Cigna will perform in the near future as they will be sure to release some new innovations that will impact the market in certain ways. If an analyst’s opinions of the stock will get increasingly better, we believe the stock will go up.

After the recent merger of Cigna Corp. with Anthem another company in the same industry, Cigna stock skyrocketed, as usually happens after mergers that show signs of good synergies indicating potential future growth. In the last week, due to increasing issues in China the markets tumbled once again, closing at low’s that hadn’t been seen since September. Obviously, this affected Cigna and we can see how the stock plunged lately in the graph below. We believe this to be an opportunity to buy the stock low and eventually sell at a higher price. As of now we see Cigna as significantly undervalued.

Warren Buffett Stocks

(Source: Google Images)

“When evaluating stocks, many investors also look to analysts for future earnings predictions and growth. Analysts are predicting $2.21 per share in earnings next quarter and $8.58 for the current year. In comparing the current price level of the equity to their moving averages, the shares are trading -5.03 off of the 50-day average of $140.85 and -6.60 away from the 200-day moving average of $142.42. ” As stated above after looking at the financials of the company analyst have come up with an average price target of $172.36 for Cigna.

 

Moody’s Corporation (Pick #3)

Moody’s is a niche-focused company, being a rating agency, it’s the main competitor is Standard’s and Poor’s (S&P500), other than them competition is relatively low, implying that there are significant barriers to entry in the industry. We see this as a plus because as long as Moody’s grows its business none of it will be taken away in the near future. They have a very strong business model with significant recurring revenues and high margins, allowing them to reinvest capital in high-return opportunities or to return it to shareholders through dividends and share repurchases. We believe Moody’s is exactly the type of stock investors with a long-term outlook would be interested in.

Despite good fundamentals, Moody’s has also suffered from last week’s and current economic downturn due to issues in China. The stock lost 2.85% in the last week. We also looked at earlier stock prices and noticed that Moody’s lost 10.88% over the last 200 days, implying that they haven’t been doing great. We then compared this loss to the S&P results over the last 200 days, which lost 7.10% in that time frame. We believe there is a strong correlation between the 2 and that if markets were to rebound Moody’s would rise again very quickly.

Warren Buffett Stocks

(Source: Google Images – http://www.octafinance.com/evercore-isi-initiates-moodys-corporation-nysemco-coverage-with-hold-rating-and-103-00-price-target/329777/ )

On the long-term, we see Moody’s as a fundamentally solid company and believe that its stock will start rising again. Many analysts have recently upgraded Moody’s to a “buy”, which further reinforces our bullish view on Moody’s. “Research firms on the Street have price targets on the name ranging from $98 to $128 with a standard deviation of $11.003. The consensus target from the 6 analysts providing projections currently stands at $110.666. The mean target was last revised on 2016-01-07. These are short-term projections for the next 12 months.”

I Know First’s Forecasts:

I Know First supplies financial services, mainly through stock forecasts via their predictive algorithm. The algorithm incorporates a 15-year database and utilizes it to predict the flow of money across 2000 markets. The self-learning algorithm uses artificial intelligence, predictive models based on artificial neural networks, and genetic algorithms to predict money movements within various markets.

I Know First recently release bullish forecasts for the companies analyzed above, as it can be seen below all of the algorithmic forecasts released indicate a strong bullish view for the buffett’s choices.

Warren Buffett Stocks

Here we can see the 1-year forecast, that gives strong values for the 3 companies indicating signals of 93.52 for CI, 40.21 for NOV and 32.87 for MCO. The predictabilities, as shown above, are 0.4 for CI, 0.79 for NOV and 0.37 for MCO.

Warren Buffett Stocks

Again, we look at our 3-Month forecast for the same stocks, which just reinforces our 1-year forecast in the matter that our algorithm is bullish on the stocks.

 

Conclusion

To conclude, after looking at fundamental aspects for the 3 companies above mentioned, and taking into account current market conditions we release overweight ratings for all of them. Our algorithm reinforces our fundamental view for the stocks significantly and we are confident that patient investors confident in their investments will see returns on a longer-term outlook. And after all, let’s not forget that these stock are a significant part of Warren Buffett’s portfolio, he’s worth north of $50 Billion for a reason.

 


premium