Warren Buffett made headlines recently with Berkshire Hathaway’s acquisition of Precision Castparts. And in his latest Forbes.com column, Validea CEO John Reese talks about why the firm is a “Buffett-esque” company.
“As usually is the case when it comes to assessments of Buffett’s buys, the speculation surrounding the Precision acquisition has largely involved theories about Buffett’s macroeconomic or qualitative views about the business,” Reese writes. “But remember, as much as the Oracle of Omaha looks at broader trends and intangible factors, the numbers have to line up for him to make a purchase.”
The numbers, Reese writes, “say that Precision does indeed have many of the fundamental and financial characteristics that Buffett has looked for throughout his career.” He examines how Precision stacks up against his Buffett-inspired “Guru Strategy,” which is based on Buffettology, a book written by Mary Buffett, who worked closely with Mr. Buffett and is his former daughter-in-law. “One quality Buffett looks for, for example, is a lengthy track record of persistent earnings growth,” Reese writes. “He wants to see that a company can make money in good times and bad, and that it’s not just a short-term flash in the pan. Over the past decade, Precision has increased earnings-per-share in all but two years, passing my Buffett model’s earnings persistence test.”
Reese also talks about how Precision’s debt metrics and internal returns stack up well against his Buffett model’s criteria. He also looks at a handful of other industrial stocks that currently get high marks from the strategy.