BALTIMORE (Stockpickr) -- The massive stock run-up of the last year and a half has left few stocks looking attractive to value investors like Warren Buffett, even with the correction that major indices such as the S&P 500 saw in May. But that doesn't necessarily mean that good value opportunities aren't out there -- only that they're a bit more difficult to find. Today, we'll take a page from Buffett's book to find four undervalued stocks for June.
Warren Buffett, the Oracle of Omaha, is one of the world's most closely followed investors. That's largely a product of the fact that he's also one of the richest, with an estimated fortune of $47 billion according to
in 2010. But while scores of investors try to predict his next move, many miss out on one of the best ways to emulate Buffett's success: following
While Warren Buffett's specific investment methodology is a mystery to most, the super investor has made no secret of a handful of rules for successful investing, among them: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" and "Our favorite holding period is forever."
With those Buffett-isms in mind, it makes more sense to examine the Oracle's existing portfolio for wonderful companies at fair prices than it does to try to guess his next pick -- especially considering his investment horizon. Here's a look at
that might just fit that bill this month.
is getting a lot of attention right now -- after all, the company is the reason for Warren Buffett's begrudging appearance in Washington this morning, a chance to answer for the substantial failings of ratings firms. Buffett, who owns 13% of Moody's through
, was hesitant to appear before Congress, opining that he had no unique perspective on the situation, but Congress was eager to pick his brain nonetheless.
The realization that ratings agencies like Moody's fell seriously short of their duties to accurately disseminate risk has been a weight on the company's share price, knocking the company down 28% since the first trading day of 2010. But while that tumble has given the company's owners a financial black eye, it's actually put the company at a more reasonable valuation for market participants who were holding out.
To be sure, the company faces significant trouble right now, including expensive litigation and a litany of short-sellers who are betting that Buffett's wrong on this one. But increasing debt issues from companies and organizations around the world are just beginning to beef up Moody's business volume, and all of its competitors are currently on equal footing. Strong margins and a newly lowered share price make this company worth looking into.
With all the focus on Buffett's Berkshire Hathaway, it's easy for investors to overlook
, a company owned 80% by Berkshire that's run by Buffett's long-time partner Charlie Munger. It's no surprise that Berkshire owns a sizable stake in Wesco, a sort of mini-me version of its better-known parent, with businesses that operate in the insurance, furniture rental and steel industries. But with a significantly lower profile, this company remains a strong value -- for now.
Wesco trades for a very high price-to-earnings ratio right now, but that metric is misleading after the company reported sizable one-time losses in its first-quarter earnings. Instead, a price-to-book ratio that rings in under 1, a presciently managed balance sheet and exceptional margins should keep this company performing strongly for the foreseeable future.
New business deals and expansion plans should help take Wesco to the next level in the mid-term.
One of the best ways to know whether Buffett himself thinks one of his portfolio holdings is undervalued is simply by asking him -- or rather by taking a look at which positions he added since last quarter per his SEC-required filings. While Warren didn't initiate any new positions this quarter, he did add to a few holdings that were already open. Among them is
, the waste disposal services company that's owned by a number of other well-known investors, including
Republic faces stiff competition in a fractionated industry, but the company has still managed to deliver 47% growth over the trailing three years -- through the acquisition of Allied Waste in 2008 -- without sacrificing its financial health. A 2.62% dividend yield sweetens the pot on this garbage stock.
Another stock that Buffett loaded up on last quarter is
, a $4.85 billion company that focuses on document storage and protection for commercial clients. Iron Mountain is the largest company in the document management industry by far, and its vast recurring revenue streams make it an attractive choice for investors who are looking for some semblance of stability in an otherwise volatile market.
At first glance, Iron Mountain doesn't look like an undervalued stock -- with an industry-high price multiples, it's hard to make a value case -- but with annual price increases set to take effect from now on, the company's discounted cash flow valuation still looks very attractive. That's the rationale for buying into this company right now.
To see the rest of Warren Buffett's plays, including a complete list of which stocks he added or sold off, check out the
-- Written by Jonas Elmerraji in Baltimore.
Berkshire Hathaway (BRK.B) is an open long position in the Rhino Stock Report's portfolio.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.