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S&P Stock Screen Uncovers "What Buffett Would Buy"

The new Apple iPhone is seen Friday, June 29, 2007 in New York.  (AP Photo/Jason DeCrow)
Jason Decrow
The new Apple iPhone is seen Friday, June 29, 2007 in New York. (AP Photo/Jason DeCrow)

Standard and Poor's has just released the results of its twice-a-year stock screen, designed to find Warren Buffett-style stocks.

In an article about the screen posted early this morning, Business Week (the magazine is owned by McGraw-Hill, which also owns Standard and Poor's) says S&P Portfolio Services analyst David Braverman compiles a screen that "picks companies using criteria similar to those that fit the legendary investor's growth-oriented style."

The screen looks for:

  • Owner earnings (cash flow minus capital expenditures) above $50 million
  • Net margins of at least 15% for the past 12 months
  • At least 15% return on equity in the previous quarter and in each of the past three years
  • Retained earnings that have grown less than market capitalization over five years
  • Projected cash flow per share above current stock price over next five years
  • Market value at or above $500 million

The criteria are based on Robert Hagstrom's book The Warren Buffett Way: Investment Strategies of the World's Greatest Investor.

As one Business Week reader points out in his on-line comment attached to the article, the screen does not include some important, but hard-to-quantify Buffett requirements, like trust-worthy, competent management and 'durable competitive advantage.' (During a video tour of his Omaha headquarters last November, Buffett showed our Becky Quick a particularly telling example of Why 'Durable Competitive Advantage' Matters.)

With that caveat, here are the results of the S&P "Buffett" screen as listed by Business Week. It notes "the presence of a number of European and Asian names" including China Mobile, the company with the largest market value in the list. (Remember that during his October trip to Asia, Buffett wasn't too enthusiastic about Chinese stocksbecause the market had been "too hot."

  • 3M


  • Alcon


  • Altera


  • Altria Group


  • Aluminum Corp. of China


  • America Movil


  • Apollo Group


  • Apple


  • Aracruz Celulose


  • Autodesk


  • Bard (C.R.)


  • Becton Dickinson


  • BG Group


  • British American Tobacco


  • Brown-Forman


  • China Mobile


  • Cisco Systems


  • Coach


  • Coca-Cola


  • Diageo


  • Equifax


  • Franklin Resources


  • Freeport-McMoRan Copper


  • Garmin


  • GlaxoSmithKline


  • Grupo Televisa


  • Infosys Technologies


  • Intl. Game Technology


  • Johnson & Johnson


  • Microsoft


  • Mobile Telesystems


  • National Semiconductor


  • Novo-Nordisk


  • Occidental Petroleum


  • Oracle


  • Overseas Shipholding Group


  • Paychex


  • PepsiCo


  • Philippine Long Distance


  • Portugal Telecom


  • Price (T. Rowe) Group


  • Qualcomm


  • Qwest Communications


  • Rio Tinto Group


  • Roche Holdings


  • Rockwell Automation


  • SAP


  • Sasol


  • Schlumberger


  • Sigma-Aldrich


  • Stryker


  • Swisscom


  • Taiwan Semiconductor


  • TD AmeriTrade


  • Telefonica


  • Telefonos De Mexico


  • Turkcell


  • Vimpel Communications


  • Votorantim Celulose


  • Wipro


To me, the list looks a bit heavy on the tech names to really fit Buffett's style. But whether Warren would actually buy Apple or not, the screen does pretty well. Business Week says from 1995 through last month, the stocks selected twice a year by the screen were up almost 15 percent a year. That's almost double the S&P's annualized return of just over 8 percent.

Final disclaimer from Biz Week: "It should be noted that these are not necessarily stocks that Buffett has bought or personally plans to buy. The list reflects only the criteria that Buffett has emphasized in the past."

Berkshire's current price:

Questions? Comments? Email me at buffettwatch@cnbc.com