Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) celebrated his 88th birthday on Thursday, the day his favorite market indicator reached approximately 0.4% below its all-time high of 148.5%. Even though the markets are significantly overvalued, the Buffett-Munger Screener listed several five-star companies that offer strong value potential for the rest of 2018, including Alliance Data Systems Corp. (ADS, Financial), Gentex Corp. (GNTX, Financial), Ulta Beauty Inc. (ULTA, Financial) and IPG Photonics Corp. (IPGP, Financial).
Opportunities can still exist in a significantly overvalued market
Throughout August, our GuruFocus Forum users pondered if investors can still find securities to buy as the markets are overvalued “in just about every way [one] can measure it.” However, opportunities can still exist even in such markets.
Several of our model portfolios, including the most broadly held portfolio, the undervalued predictable portfolio and the Buffett-Munger portfolio have posted a cumulative return of at least 200% since inception. Buffett and co-chairman Charlie Munger (Trades, Portfolio) listed several investing criteria for finding “wonderful companies at fair prices,” including predictable earnings and strong economic moat.
Alliance Data Systems
Alliance Data Systems provides marketing, loyalty and credit solutions across the U.S., Canada and other countries through various business segments, including LoyaltyOne and Epsilon. GuruFocus ranks the company’s profitability 9 out of 10 on several factors, including a strong Piotroski F-score of 7 and returns on equity that are outperforming 97% of global competitors.
Among gurus with positions in Alliance Data Systems, Jeff Ubben (Trades, Portfolio), Glenn Greenberg (Trades, Portfolio) and Jerome Dodson (Trades, Portfolio) own the three largest positions as of the June quarter.
Gentex
The Buffett-Munger model portfolio added 523 shares of Gentex for $20.95 per share on Jan. 1. The auto parts manufacturer has gained 13.70% year to date.
Zeeland, Michigan-based Gentex manufactures automotive automatic-dimming rearview mirrors and other automotive electronics. While net sales increased 3% quarter-over-quarter, a rate that missed management’s expectations according to CEO Steve Downing, the company’s three-year revenue growth rate of 10% still outperforms 74% of global competitors. GuruFocus lists consistent revenue growth, expanding operating margins and “infinite” interest coverage as positive investing signs.
Ulta
The model portfolio added 44 shares of Ulta on Jan 2, 2017, for $254.94 per share. The Bolingbrook, Illinois-based beauty retailer climbed near its 52-week high of $261.40 on news that the company expects to bring Kylie Cosmetics exclusively to its stores ahead of the holiday season, according to CNBC columnist Lauren Thomas.
Ulta CEO Mary Dillon said on Thursday that net sales increased 15.4% year over year, “reflecting rapid growth” primarily in prestige boutique brands, mass cosmetics and skin care. GuruFocus ranks the company’s financial strength a perfect 10 on several factors, including no debt and a robust Altman Z-score of 10.96. Other positive investing signs include consistent revenue growth and operating margins that have increased 1.70% per year over the past five years.
Several gurus established positions in Ulta during the quarter, including George Soros (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)’s Bridgewater Associates.
IPG Photonics
IPG Photonics develops and manufactures high-performance fiber lasers, fiber amplifiers and diode lasers, products used in diverse applications in manufacturing, automotive and industrial markets. GuruFocus lists six positive investing signs for the Oxford, Massachusetts-based company, including robust interest coverage, expanding profit margins, consistent revenue growth and a share price near a 52-week low.
See also
The Buffett-Munger screener also listed three other companies with a predictability rank of five stars: Service City International (SCI, Financial), SJW Group (SJW, Financial) and Texas Pacific Land Trust (TPL, Financial).
Disclosure: The author has no positions in the stocks mentioned but might initiate positions in some of them by next week.
