Stock Quotes in this Article: AXP, BAC, BRK.A, BRK.B, DG, MA, MCO, V, VRSK, WFC

BALTIMORE (Stockpickr) -- Warren Buffett has been getting a lot of press lately. The billionaire investor has been front and center about the economy in recent weeks, sharing his thoughts on everything from stock prices to the U.S. debt crisis with the media. As investors flock to "buy like Buffett," considerable weight is being put on the Oracle of Omaha's words this summer.

But the interviews only tell part of the story. What Buffett's doing with his own money tells us a lot more.

For the last few weeks, stocks have been dramatically out of synch with fundamentals. It's a theme that I've talked about more than once this summer. For a Graham and Dodd disciple like Buffett, that market tumult has meant more opportunities popping up on the radar. Still, filings show that Buffett and his firm, Berkshire Hathaway (BRK.A, BRK.B), only initiated or added onto four positions in the most recent quarter. Those four names, plus the Bank of America (BAC) investment, tell us a lot about what this $50 billion Nebraska-native thinks about the market right now.

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Want to buy like Buffett in this market? Here's a more in-depth look at the four names that Berkshire Hathaway added to its portfolio in the latest quarter.



Verisk Analytics

Of the two new positions initiated by Berkshire last quarter, the firm's position in Verisk Analytics (VRSK) was the biggest -- a $72 million buy.

Verisk is a risk data provider for clients in the insurance, mortgage and health care markets, offering access to its databases of everything from 668 million property and casualty insurance claims to 312 million criminal records. It's not just risk data that Verisk provides; more important, the firm provides the tools that enable clients to analyze and interpret that data. That's the more defensible aspect of Verisk's business.

Verisk is a reasonably new addition to the public equity market; the firm went public in October 2009, raising $1.79 billion in one of the most significant IPOs of the year. Since then, shares have appreciated by more than 30%, besting the broad market by a factor of almost two.

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In recent years, Verisk has pushed its data business from serving only insurance clients to include datasets for mortgage, health care and government users. That shift is incredibly attractive for investors right now -- not only does it mean that Verisk has a more diversified client base, it also means that the company is able to grow its high-margin business at a quick pace. It's not surprising that Buffett and company picked up shares of Verisk -- they've already got positions in similar data-driven businesses, such as Moody's (MCO).

Dollar General

Dollar General (DG) is Berkshire's other newly initiated position from the last quarter (the firm's two other buys were position increases). The $12 billion dollar store chain weighs in as the biggest of the group, with a geographic footprint that encompasses 9,400 stores.

While unfamiliar investors might not think that selling products for a dollar is an attractive business, Dollar General has proven immensely successful by doing just that. The firm's net margins rang in at 4.55% in the last quarter, significantly outpacing the 3% margins in the rest of the specialty retail industry.

Economic factors have been a major tailwind for Dollar General. As consumers became more cost sensitive during the depths of 2008's recession, they traded down to Dollar General's stores to shop for everything from groceries to home products and apparel. During the thus-far tenuous recovery, consumers have continued to flock to DG's stores even as competition from Wal-Mart (WMT) -- another Buffett holding -- and other big box stores ramps up.

While Dollar General does carry a sizable amount of leverage on its balance sheet, the firm's free cash flow generation abilities are a redeeming factor for investors. The stock's interest coverage and recession resistance make it look attractive regardless. Warren Buffett's firm took on a $51 million position in Dollar General last quarter.

Buffett isn't alone in liking Dollar General. Other investors in the stock include Steve Mandel's Lone Pine Capital -- Dollar General is one of its top three holdings, comprising 4.2% of the total portfolio -- and Lee Ainslie's Maverick Capital. It was also featured recently as one of five heavily shorted stocks that could get squeezed higher.


It's been an impressive year for shareholders of MasterCard (MA) -- the payment processor has rallied more than 47% so far this year. Buffett and Berkshire are among those happy shareholders, with a $181 million stake in the stock. That position includes the 189,000-share increase that Berkshire made in its MasterCard position last quarter.

MasterCard is a payment card giant with a processing network that comes in second only to standard bearer Visa (V) -- the firm's logo can be found on more than 30% of the world's credit and debit cards. That market share makes the two firms a true duopoly, controlling more than 90% of the payment processing market. That number decreases dramatically when measured by dollar volume of transactions, however -- American Express (AXP), another Berkshire Holding, may be the underdog in terms of cards with its logo, but its affluent customer base generates much more spending (and revenue) per user.

That doesn't necessarily mean that the market is saturated for MasterCard in 2011. The transition to more electronic payments should provide significant opportunities for payment networks, particularly abroad and in emerging markets, where MasterCard is particularly strong. In my view, rising tides are likely to lift all boats in this market -- and MasterCard's lack of credit risk and hefty cash position makes it better situated to ride out any intermediate economic speed bumps.

MasterCard shows up on recent lists of 9 Stocks That Resisted the S&P Downgrade and 10 Best-Performing S&P 500 Stocks of 2011.

Wells Fargo

Despite seeing a $978 million decrease in market value in the last quarter, Buffett has been averaging down his firm's stake in Wells Fargo (WFC), adding 9.7 million shares onto his mammoth $9.9 billion position in the bank. That's a very strong bet, even for Buffett -- at current values, his stake in Wells Fargo represents a full 19% of Berkshire Hathaway's total portfolio.

If Buffett's bet on Wells is aggressive, it's at least understandable. Wells Fargo emerged from the financial crisis as the best-in-breed of the big banks, thanks not only to stricter underwriting standards than exuberant peers, but also thanks to a continual focus on building its deposit base. Put simply, while other banks were busy putting all of their efforts (and balance sheets) in the capital markets, Wells Fargo was busy being a retail and commercial bank. Today, WFC holds $1.26 trillion in assets, thanks in large part to the acquisition of Wachovia at bargain bin prices at the end of 2008.

Wells Fargo hasn't been immune to the beating that financials have taken in 2011 -- that's evident in Buffett's near billion-dollar loss in this stock last quarter. Even so, long-term value does certainly exist in WFC's cheap sources of capital, materially lower delinquency rates, and bargain share prices.

Wells Fargo, which shows up on a recent list of 10 Banks Growing Business Lonas, is also one of the top holdings of John Paulson and shows up in David Tepper's Appaloosa Management portfolio.

Bank of America

I can't bring up Buffett's bets on financial firms without at least mentioning his high-profile investment in Bank of America (BAC). Last month, news hit that Berkshire Hathaway was investing $5 billion in preferred shares and warrants in Bank of America. The bank had been under substantial pressure from market participants, sliding nearly 40% on the month as speculation whirled that BofA would need to raise substantial capital to stay solvent.

For the big banks, perception is everything, and strength in the market means that capital can be raised cheaply and quickly. Even if BofA didn't need the cash, the infusion was a high profile thumbs up from the world's most influential investor.

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And for Buffett, it was a sweetheart deal. His preferred shares pay out distributions of $300 million a year -- and his warrants means that he won't miss out on price appreciation in the bank's common shares. Even though the preferred investment in Bank of America doesn't carry the same risks as a common stock purchase (despite the name, it's more of a fixed-income bet than an equity bet), it does mean that Buffett has faith in BofA's ability to stay afloat.

For stock performance, though, the Oracle of Omaha is placing his bigger stakes on Wells Fargo.

To see the rest of Warren Buffett's plays -- including a complete list of which stocks he added or sold off, check out the Warren Buffett Portfolio on Stockpickr. 


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-- Written by Jonas Elmerraji in Baltimore.