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4 Warren Buffett Inspired Stocks to Buy for January: T. Rowe Price, Novo Nordisk, Evercore, and Williams-Sonoma

As stocks have been pulled in both directions due to a mix of positive and negative news, long-term investors should consider investing like Warren Buffet. Here are four companies that the Oracle of Omaha would like: T. Rowe Price Group (TROW), Novo Nordisk (NVO), Evercore (EVR), and Williams-Sonoma (WSM).

The markets are struggling to find a direction after lawmakers voted to approve a $900 billion stimulus package. The positives of both the stimulus package and the COVID vaccine are being weighed against concerns over a new strain of the coronavirus that has been identified in the UK. When in doubt, investors should think long-term, and there is no other investor I’d rather follow long-term than Warren Buffet.

While many investors like to follow his lead and invest in companies he purchases, I prefer to invest in stocks based on his investment philosophy, and I have four that fit the bill, including T. Rowe Price Group, Inc. (TROW), Novo Nordisk (NVO), Evercore Inc. (EVR), and Williams-Sonoma, Inc. (WSM). To find these stocks, I used an investment strategy outlined in the book Buffettology, written by Buffett’s ex-daughter-in-law, Mary Buffett. I created a stock screen based on the criteria laid out in the book. 

This screen looks for stocks that have a 10-year track record of generally increasing EPS, long-term debt not more than five times annual earnings, average ROE over the past ten years of at least 15%, average ROIC over the last ten years of at least 12%, and earnings yield higher than the long-term Treasury yield. I added another filter to only search for stocks rated a “Strong Buy” in our proprietary momentum-based POWR Ratings system.

The following four stocks are not only “Strong Buys” in the POWR Ratings but are financially sound and offer strong growth potential.

Rowe Price Group, Inc. (TROW)

TROW is an investment firm that offers a broad range of mutual funds. Since the company’s revenue is derived from fees on client assets, it grows through new client assets and organically through asset growth in client accounts. The company has grown significantly over the past ten years, going from $391 billion in assets under management to $1.4 trillion in 2020. 

The company is a perfect Buffet style stock as it has a stable history of earnings growth, up an average of 14.4% over the last five years, and has no debt. TROW also has a return on equity of 29.1%, a return on invested capital of (ROIC) 29.7%, and an earnings yield of 6.0%, well above the long-term Treasury yield. TROW also has the distinction of being a Dividend Aristocrat, with 33 straight years of annual dividend increases. Its current dividend yield is 2.4%.

While many financial companies struggled this year, TROW has kept moving along. In its most recent quarter, the fund complex saw its net income increase 15% year over year to $602 million, and its EPS rose by nearly 20% to $2.55 per share. Warren Buffet is also known to like companies with strong competitive advantages, and TROW certainly has them.

First, its actively managed funds have shown strong outperformance against its peers. Second, approximately two-thirds of the company’s assets are in retirement accounts, which provides a sticky client base; and third, its strong balance sheet provides it the liquidity to roll out new funds. The stock is rated a ”Strong Buy” in our POWR Ratings service, with a grade of “A” in Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. It is also ranked #2 in the Asset Management industry.

Novo Nordisk (NVO)

With close to a 50% market share of the global insulin market, NVO is the leading provider of diabetes-care products in the world. While NVO specializes in diabetes care, it also works on therapeutic pharmaceuticals for rare blood and endocrine disorders and obesity. In addition to insulin, the company also has a 49.9% share of the GLP-1 market.

GLP-1s, which are new, are drugs used for type 2 diabetes patients that control blood sugar and have shown to improve heart health, kidney function, and weight loss. NVO’s Rybelsus drug was the first GLP-1 drug approved in the U.S. The other benefit of the drug is that it is administered orally, as opposed to injections.

Similar to TROW, NVO has a steady history of earnings growth and a healthy balance sheet. The company had $4 billion in cash at the end of the most recent quarter, compared to only $418 million in long-term debt. NVO also has a sky-high return on equity of 70.2% and an ROIC of 66.2%.

Plus, NVO has an earnings yield of 4.1%. The stock is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in every POWR component, including its overall grade. The stock is ranked #4 out of 240 companies in the Medical – Pharmaceutical industry. The company is poised for future growth due to its focus on diabetes. Unfortunately, over 450 million people in the world have diabetes, with many of them undiagnosed. This provides plenty of steady growth potential for NVO.

Evercore Inc. (EVR)

Another company I have been high on is EVR, an independent investment bank that has benefited from a strong IPO market this year. The stock is up 49.6% this year, compared with a 14.1% gain for the S&P 500. The company drives revenue from advisory fees from mergers and acquisitions (M&A) and underwriting fees from capital raising.

While M&A activity has been down this year, underwriting has been up across the board for investment banks this year as many companies needed to raise capital during the pandemic. EVR though was a standout. The company was part of 30 underwriting transactions in the most recent quarter and has served as a bookrunner or co-manager on 6 of the largest IPOs of the year. It has even been named the top independent research franchise by Institutional Investor for seven consecutive straight years, including 2020.

The company has a strong history of growth, with earnings expected to grow 37% next year. EVR has a return on equity of 24.2% and an earnings yield of 5.1%. The company’s growth should continue as M&A activity is expected to rebound next year. EVR even sports a dividend of 2.3%. In fact, the company has had 11 straight years of dividend increases.

The stock is rated a “Strong Buy” in our POWR Ratings service. It holds a grade of “A” across the board in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. The stock is also ranked #8 in the Investment Brokerage industry.

Williams-Sonoma, Inc. (WSM)

WSM is a luxury retailer in the $117 billion home furnishings category. We all know large retail companies such as Walmart (WMT) and Target (TGT) performed well during the pandemic, but WSM also performed well, unlike many of its luxury peers. Its competitors have typically relied on brick and mortar stores for sales, while WSM had built a robust digital presence before the pandemic hit, setting it up for success this year.

The company also benefited from a renewed focus on the home. With so many people stuck at home during the pandemic, home improvement became quite popular. In addition, its affluent clientele was able to weather any pandemic headwinds that customers in lower-income brackets were not. In its most recent quarter, the company’s e-commerce sales soared 49%.

Estimates for the full year 2020 have been increasing recently, which indicates analyst optimism. The company was able to take market share away from its competitors this year, and management believes it can claim even more. For instance, the company is looking to take a 3% market share in the Business to Business (B2B) and international segments, which would triple its annual revenue.

The company has a strong history of earnings growth, up an average of 14.8% over the past five years. WSM also has a return on equity of 38.4% and an ROIC of 17.4%, indicating it is quite profitable. It also has an earnings yield of 6.3%. The stock is rated a “Strong Buy” in our POWR Ratings system with a grade of “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. The stock is also ranked #10 in the Home Improvement & Goods industry.

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TROW shares . Year-to-date, TROW has gained 24.75%, versus a 16.23% rise in the benchmark S&P 500 index during the same period.



About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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