If jolly ol' St. Buffett were handing out stocks, there's reason to believe he'd pick retailers. Here's why -- and the names he might consider gifts to investors.
Anyone who reads "The Snowball," a great biography of Warren Buffett, knows the Oracle of Omaha is such a fanatical investor that his holiday shopping list might very well include stocks.
But which stocks would Buffett give out now for 2010 profits? His list would likely be heavy with retail, for two reasons:
Which names? That's the challenge; Buffett never talks about the stocks he's only thinking of buying. So I checked in with Validea, an investment shop that has built computer models to "think" like investing greats, including Buffett.
If you believe the idea of programming computers to mimic investing greats sounds far-fetched, consider this: After Wal-Mart got hammered late last year, the retailer came up on Validea's Buffett portfolio, and it has stayed there all year. Sure enough, by the third quarter, Buffett's Berkshire Hathaway (BRK.A, news, msgs) had added heavily to its Wal-Mart position.
Plus, Validea's Buffett portfolio was up 41.5% in 2009, as of Dec. 10, compared with 22% gains for the S&P 500 Index ($INX). (Validea founder John Reese blogs in MSN Money's Top Stocks, by the way.)
Validea's portfolio is a good place to turn if you want a short list of retailers that Buffett might like. Its top picks right now: Wal-Mart, Coach (COH, news, msgs), Jos. A. Bank Clothiers (JOSB, news, msgs), Ross Stores (ROST, news, msgs), Family Dollar Stores (FDO, news, msgs), Aeropostale (ARO, news, msgs) and Buckle (BKE, news, msgs). More from MSN MoneyFind a broker and trade stocks nowIs a Santa Claus rally coming to town?Corporate America's huge piles of cash9 ways to earn 6% or more Farewell to Wall Street's decade of hubrisWhy Buffett likes retail Before we get to why these companies are Buffett-like stocks, let's take a look at why betting on the consumer makes sense when the consumer economy still looks bleak.
First, as Buffett might say, that negativity alone is a great reason. Retailers are a good contrarian play because so many smart investors -- not just the always-bearish crowd -- are so negative on the consumer.
How to find cheap stocks
Now let's take a look at how Validea's seven Buffett picks match up with the qualities he looks for in stocks. (I outlined these in "10 investing basics from Buffett.")
Continued: Frugality plays
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