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Value investing: Top 10 stocks based on Warren Buffett's investment methodology

Buffett’s criteria - stocks must earn good return on capital; must be run by able managers; and must be available at sensible price

February 26, 2020 / 01:41 PM IST
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Legendary investors Warren Buffett in his recent letter to shareholders indicated that Berkshire Hathaway is prepared for his and his partner Charlie Munger's departure.

The ‘Oracle of Omaha’, legendary value investor, Buffett in his letter to shareholders said that he is fully invested even at the age of 89 years. He said that 99 percent of his net worth lodged in Berkshire stock.

“I have never sold any shares and have no plans to do so. My only disposal of Berkshire shares, aside from charitable donations and minor personal gifts, took place in 1980,” said the letter.

He is an inspiration to investors not just in India but across the globe. His learnings are endless and his letter to shareholders have been a guide to value investing for investors for the past 4-5 decades.

“In a hyperactive financial market full of confusing noises, the voice of Warren Buffett and Charlie Munger has not only been a source of calm but also a decisive signal for all the long-term investors in equities,” Shailendra Kumar, Director & CIO at Narnolia Financial Advisors told Moneycontrol.

“Shareholder letters that Warren has written for over the last 40 years is the main 'go-to place' for anyone thinking of knowing mantra for long-term wealth creation. Every word of these letters is full of investment wisdom. A large part of the investment process that I follow is influenced by those letters,” he said.

Warren Buffett’s criteria before you pick any stock which would make them investment-worthy is – a) They must earn a good return on capital, b) they must be run by able and honest managers, and c) they must be available at a sensible price.

Key Learnings:

“Warren Buffett's methodology emphasizes long term frame and looks at a broader picture. It is always better to acquire low leveraged stock with growth potential and to look for stocks whose business one can analyze,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor told Moneycontrol.

“It is always better to look for the operating earnings because it will show the quality of the core business which will give way to price appreciation in the future. Value investing using the intrinsic value of the company is another useful tool in Buffett methodology, this method gives a clear and scientific basis of loading or unloading a stock,” he said.

What to buy:

Warren Buffett, a former student of Benjamin Graham, is noted as a legendary value investor. He emphasize on stocks that are trading at reasonable prices.

Making the job simpler for investors in picking stocks conforming to the values of Buffett, we have taken data from MarketSmith powered by William O'Neil.

The following stocks were filtered with the highest Master Score and RS (Relative Strength) rating. Master Score is a proprietary filter created by MarketSmith that highlights great earnings potential and strong price performance of a stock.

On the other hand, RS rating is a technical tool that is the most popular way to see the market’s top performers. The Relative Strength rating is the result of calculating a stock’s percentage price change over the last 12 months.

A 40 percent weight is assigned to the latest three-month period; the remaining three quarters each receive 20 percent weight. All stocks are arranged in order of greatest price percentage change and assigned a percentile rank from 99 (highest) to 1 (lowest).

The filter is applied to look for companies with long-term past and potential future growth. Of the stocks returned by the screen, Buffett most likely would emphasize on those trading at reasonable prices.

The stocks having a market capitalisation greater than Rs 500 crore and Average Rupee Volume greater than 10,000 crores are considered to filter stocks for the list.

Here are 10 stocks according to the above-mentioned parameters that one should look at (they are filtered based on Market Score). The stocks having market capitalization greater than Rs 500 crore and Average Rupee Volume greater than 10,000 crores are considered to filter stocks for the list:

Balkrishna Industries: Master Score 81

Balkrishna Industries

Honeywell Automation India: Master Score 78

Honeywell Automation

Nesco: Master Score 78Nesco Feb

Relaxo Footwear: Master Score 78

Relaxo Footwear Feb

Abbott India: Master Score 77

Abbott India Feb

Atul: Master Score 75

Atul NSE

Jubilant FoodWorks: Master Score 75

Jubilant FoodWorks

Bharat Rasayan: Master Score 75

Bharat Rasayan Feb

Bata India: Master Score 74

Bata India Feb

Ratnamani Metals & Tubes: Master Score 74

Ratnamani Metals

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

Kshitij Anand
Kshitij Anand is the Editor Markets at Moneycontrol.