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Stock Strategist

Berkshire Hathaway's 5-Star Stocks

How to profit by combining Morningstar's and Berkshire's best investment ideas.

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In addition to its just-released shareholder letter,  Berkshire Hathaway (BRK.B) also recently released its latest Form 13-F, which disclosed the investment conglomerate's stock holdings as of Dec. 31, 2006. Both Warren Buffett--perhaps the greatest investor of our time--as well as Lou Simpson, his colleague at Berkshire's wholly owned auto insurer GEICO, manage Berkshire's equity portfolio, and I think comparing a cross-section of their picks with Morningstar's research can potentially uncover some very attractive investment ideas. To begin profiting from some of these picks and to receive my most recent analyses, be sure to sign up for my e-mail alerts.

In my view, just because Berkshire owns a stock doesn't necessarily mean that the price is still attractive enough for you to consider purchasing it. In fact, Buffett actually said in last year's Berkshire Hathaway annual shareholders' letter, "Expect no miracles from our equity portfolio. Though we own major interests in a number of strong, highly profitable businesses, they are not selling at anything like bargain prices." He went on to say, "The likelihood is that their per-share earnings, in aggregate, will grow 6-8% per year over the decade and that their stock prices will more or less match that growth." While it is certainly possible that Buffett is being somewhat conservative in his assessment, and that for many investors 6-8% annual growth over 10 years would be welcome, I'd like to think that investors can do better by cherry-picking from Berkshire's portfolio, rather than simply replicating it. Before taking a look at what we at Morningstar think are the most compelling ideas from Berkshire's portfolio, I'll recap the conglomerate's most recent transactions.

Justin Fuller has a position in the following securities mentioned above: AXP, PG, HD, WU, GE. Find out about Morningstar’s editorial policies.