Three Stocks Buffett Could Love

Warren Buffett comes as close to a legendary man on Wall Street as anyone alive. His powers of observation and his accomplishments as an investor are beyond repute.

For example, I read that in 2002, he told one of his Berkshire Hathaway companies, General Re, to untangle itself from a couple of thousand contracts it had involving such complex financial instruments as securitized mortgages. This was about five years before the credit crisis we are going through hit everyone's radar screen and these financial instruments became Wall Street's equivalent of Superman's kryptonite.

In a Fortune magazine article in 1999, he said he expected the stock market to produce a return, after discounting for inflation, of about 4% a year over the coming years. This was when the market had been producing double-digit returns for years -- and before the Internet bubble went "poof." The current decade is largely proving him right. The man can see the future.

That foresight is why I like looking at my Buffett-based strategy, which I based on Buffett's approach to investing. Buffett is well known for his preference for consumer-products companies (Coca-Cola (KO - commentary - Cramer's Take), Gillette, and recently his role in the hookup of Mars and Wrigley (WWY - commentary - Cramer's Take)), so I have run a screen looking for strong consumer-oriented companies favored by the strategy.

If you have been reading this column for any length of time, you know I do not make predictions. I am not predicting that Buffett has any interest in investing in these companies (well, one he is known to own). But these are all solid companies that get the nod from my Buffett-based strategy.

One such company is PepsiCo (PEP - commentary - Cramer's Take), maker of Pepsi sodas, Tropicana orange juice, Frito-Lay chips and Quaker Oats cereals. The strategy demands that the company be in a dominant position in its markets, and that is certainly true of PepsiCo, which is ranked No. 1 or No. 2 in sodas and chips. Earnings have been adequately predictable, going up in eight of the past 10 years. The past 10 years have seen an average growth rate in earnings of 13.6%, and analysts' earnings estimates for the next 10 years average 10.9% growth a year. Both of these are perfectly acceptable numbers.

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At the time of publication, Reese's clients were long PepsiCo and Harley-Davidson, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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