Credit Suisse studied 20 years of Warren Buffett's acquisitions in order to replicate his approach - and it's identified 12 stocks you should buy right now
- Credit Suisse studied market legend Warren Buffett's approach to investing over a 20-year period and combined it with their own proprietary system for stock analysis.
- They arrived at a Buffett-inspired methodology for picking stocks, 12 of which are identified and outlined in detail below.
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Let's face it: You're never going to be as wealthy as Warren Buffett. He's a one-of-a-kind success story that's spawned countless imitators - none of which have come close to rivaling his generational dominance.
But you can still use Buffett's core investing techniques tenets to your advantage. And Credit Suisse is here to help you.
The firm is keenly focused on the general investing approach Buffett has employed at Berkshire Hathaway for decades - one that involves taking large equity stakes or making 100% outright acquisitions. Obviously you're not going to be throwing around that kind of cash, but there are still valuable lessons to be learned from Buffett's decision-making process.
Before we get into the methodology, let's take a quick moment to admire the immense market-beating success Buffett and his Berkshire Hathaway shareholders have enjoyed over the past 50-plus years.
The chart below says it all. Aside from a few outsized rough patches around the early-1990s recession and the dotcom bubble, he crushed any and all benchmarks.
Now let's get down to the business of figuring out how Buffett's approach can work for you.
To that end, Credit Suisse has molded five key pillars of Buffett's investing strategy into its own proprietary framework, called HOLT. The firm defines it as an "objective framework for comparing and valuing companies," and it analyzes a whopping 20,000 companies.
The five tenets of Buffett's method are:
- High returns on equity and high returns on net tangible assets
- Demonstrated consistent earnings power and ability to cope with inflation
- Employ minimal or no debt in the firm's capital structure
- Wonderful business purchased at a fair price
- Strong management in simple to understand businesses
With that in mind, Credit Suisse's specific suggestions are largely derived from one key metric: cash flow return on investment (CFROI). The firm sees a strong link between number 1, 3, and 4 above and the overall CFROI framework.
In the sections below, Credit Suisse lays out 12 single-stock recommendations spanning six sectors. Each one fits the distinct criteria of earning consistently high CFROI levels (the blue bars), while offering a low market-implied CFROI in the future (the green dots).
"When analyzing Buffett's outright acquisitions in HOLT, he consistently purchases high CFROI companies with stable margins that are priced for long-term CFROI levels to fall dramatically (i.e. the firms are inexpensive)," Credit Suisse wrote in a recent client note.