Limited Brands Inc. (LTD)

[LisaMarie]

I found this interesting because just one day after the Warren Buffett article JP Morgan cuts IFF.......IMO I'd listen to the advice of WB over JP.

"....Ahead of the Bell: JPMorgan downgrades International Flavors
Thursday April 17, 9:11 am ET
JPMorgan downgrades International Flavors & Fragrances, citing downturn in the fragrance market..."


WWBB: What Would Buffett Buy?
By Morgan Housel April 16, 2008

Article Link: http://www.fool.com/investing/value/2008/04/16/wwbb-what-would-buffett-buy.aspx

One person, five decades, $62 billion. The sheer magnitude of Warren Buffett's wealth is enough to give Robin Leach the willies. His personal net worth is larger than the annual GDP of 148 of the 210 countries listed in the CIA World Factbook. And it was all accomplished from the "Aw, shucks" location of Omaha, where the absence of Wall Street chatter makes it so silent you can hear the corn grow.

How exactly does he do it? We'd all love to know. Fact is, while millions of people have flocked toward Buffett-style investing, few, if any, have matched his awe-inspiring record.

That doesn't mean we can't learn a thing or two and search for companies that might fit Buffett's criteria. We all know the names of the winners that have propelled Berkshire Hathaway (NYSE: BRK-A) into uncharted territory: Coca-Cola (NYSE: KO), Gillette (acquired by Procter & Gamble (NYSE: PG)), and Wells Fargo (NYSE: WFC), to name a few. Over the years, they've all churned out phenomenal returns.

What might Buffett be looking at today? I'd never claim to be able to beat the Oracle to the punch, but I found a few companies that share a slew of Buffett-esque characteristics, including:

Sustainable, competitive advantages
Top-notch management
High return on invested capital
Heavy cash flow generators
Attractive valuations

Here are the winners:

Brown & Brown (NYSE: BRO)
Buffett has been an insurance freak since he was a pipsqueak. In fact, insurance premiums make up roughly 27% of Berkshire's revenue.

Brown & Brown is one heck of an insurance company, by anyone's standards. Back in 1993, it set an audacious goal of achieving at least 15% net income per-share growth every year, forever. Swinging for the fences, right? Low and behold, its per-share net income has blossomed upwards of 20% per year during that time, and it did so with profit margins that make its competitors quiver. Pre-tax margins hover around 32% in an industry that averages just over 10%.

How did B&B do it? For one, it has a unique operating structure that decentralizes each office from the top ranks, letting managers act more like entrepreneurs than employees. That's exactly how Buffett runs his own ship -- hire the right people in the right industry, then leave them alone to make their own choices. And after falling 37% in the past year, you've got an opportunity to pick up shares at the lowest prices in nearly five years.

UST (NYSE: UST)
UST holds claim to about three-quarters of the smokeless-tobacco market, as well as an assortment of fine wines. UST is the epitome of a cash flow king, cranking out enough dough to return nearly $2 billion to shareholders in the form of dividends and shareholder buybacks in just the last three years. With a current market cap of just $8 billion, that's some pretty impressive stuff. It's paid a dividend every year since 1912, raised that payment in every year but one since 1965, and currently fetches a fat 4.7% yield. Buffett loves that kind of predictability. And at just 14 times next year's earnings, you don't have to pay an arm and a leg for a sound night's sleep.

The market dominance UST holds is invaluable, and is just the kind of stuff Buffett looks for. With 186 years of experience in an industry that rarely changes, it's unlikely anyone will encroach on its territory anytime soon.

International Flavors and Fragrances (NYSE: IFF)
Buffett once remarked, "Forget about share of market, I'm talking about share of mind." With almost a century of creating some of the most tantalizing scents and tastes we've become accustomed to, IFF likely fits that mold. Here's the kicker: While IFF products are probably a bigger part of your day than you realize, it doesn't have the brand recognition that draws attention to its stock, keeping shares at reasonable valuations and away from the bubble territory that can rattle returns.

While earnings growth has been less than stellar over the past decade, management hasn't shunned shareholders' pocketbooks, gobbling up shares and paying a handsome dividend. With a return on equity around 33%, a healthy chunk of revenue hailing from abroad, and a fruitful future of making our clothes smell like fresh lilacs, IFF likely has the clout to keep its stock smelling good for quite some time.

Don't take my word for it
Understanding the principles Buffett puts into locating winning investments isn't rocket science, but it's hardly a walk in the park, either. Motley Fool advisor Philip Durrell and his team are always on the prowl, applying Buffett's philosophy to find the next deep value stocks for our Inside Value newsletter. You can get in on the action, too -- try it free for 30 days.

Until then, check out this Buffett Foolishness:

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Fool contributor Morgan Housel's bank account doesn't give Robin Leach the willies. More like the chuckles. He owns shares of Berkshire Hathaway and Procter & Gamble, but none of the other companies mentioned in this article. Berkshire and Coke are Inside Value recommendations. Berkshire is also a Stock Advisor pick. The Fool owns stock in Berkshire Hathaway. The Fool's disclosure policy is all about investors writing for investors.