Berkshire Buys: A Review of Past Picks
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Berkshire Buys
At the beginning of this year, I decided to write newsletters analyzing stocks based on Buffett’s method for stock analysis. After coming through hours of videos and reading pages of articles, I decided that there were five main rules.
Using these five rules, I went to work analyzing stocks, intentionally looking for ones that I thought would catch Berkshire's interest.
I also tracked each stock’s returns since I released the article, and I set good purchase prices for the stocks on my paid subscriber sheet.
The average return for one of my Berkshire Buys is 7.29% in under 6 months!
Rules That Constitute A Berkshire Buy
This fundamental 5-step approach to investing is how the Omaha Empire was built and how I have built my — now legendary portfolio — The Flagship Fund.
Our Best Berkshire Buy: CACI
Article Written: 2/12
YTD returns: 12.30%
Returns Since Article: 29.55%
Good Buy Price: $330.00 (we hit this target)
Returns From “Good Buy Price”: 40.01%
Current Price: $462.04 (overvalued from buy price)
CACI International Inc (NYSE:CACI) was presented as a textbook Buffett-style opportunity when we analyzed it.
We zeroed in on this $8.18 billion market cap company when its fundamentals perfectly aligned with our value-based criteria. In classic Buffett fashion, CACI's business model couldn't be more straightforward—specialized information solutions exclusively for U.S. government agencies.
Think of it as the Pentagon's IT department: essential, secure, and virtually irreplaceable.
The numbers told a compelling story. With 5-year revenue growth (per share) of 10.7% and consistent EPS expansion, CACI demonstrated the kind of predictable earnings machine that value investors dream about. Nearly 100% of its $7.66 billion FY2024 revenue came from longstanding federal relationships—creating exactly the stable cash flow profile that Buffett covets.
The moat? Practically Fort Knox.
CACI's entrenched government relationships and the high switching costs associated with national security IT infrastructure create barriers to entry that even well-funded competitors struggle to overcome. In an increasingly tense geopolitical environment—particularly regarding Chinese influence in technology—CACI's pure-play American status only strengthens its competitive advantage.
Financially, CACI showed discipline where it mattered most. Though its cash-to-debt ratio (0.05) raised an eyebrow, the company's equity-to-asset ratio of 0.44 and interest coverage of 6.17 confirmed its financial stability. Most importantly, CACI's ROIC (9.14%) handily exceeded its WACC (7.32%)—the ultimate signal that management was creating, not destroying, shareholder value.
Valuation sealed the deal. Trading at $364.92 with attractive multiples (P/E: 17.12, P/B: 2.19, P/S: 1.01), our models projected a one-year intrinsic value of $458.81—suggesting a comfortable 25.73% upside. Unlike Jabil (see below), CACI actually hit our buy target of $330, allowing disciplined investors to capture the opportunity.
The result?
A stellar 29.55% return since publication—validating our analysis and patience. While the current price has now exceeded our initial good buy threshold, CACI's performance reinforces why government-focused IT providers with predictable contracts deserve a place in value-oriented portfolios.
Summary Judgment: Strong fundamentals, genuine moat, and perfect execution of the Buffett playbook—proving once again that patience in entering positions at the right price pays handsome dividends.
The Worst Berkshire Buy: KBH
The good news is that in our article we stated that we “questioned the sustainability of their growth” and we said the stock would go on a watchlist, but we still see it as overvalued.
Article Written: 1/22/2025
YTD Returns: -15.73%
Return Since Article: -17.74%
Good Buy Price: $52.14
Returns From "Good Buy Price": 7.40%
Current Price: $56.00
KB Home (NYSE:KBH) represented a fascinating study in Buffett's principles when applied to the cyclical homebuilding sector.
We analyzed this $6.3 billion market cap company when its 3-year revenue growth rate was soaring at approximately 35% annually—an impressive figure that caught our attention. KB Home's straightforward business model—buying land, building residential properties, and selling them across four U.S. regions—embodied the kind of simplicity that Buffett famously prizes. As we often note, "The most low-IQ millionaires exist in real estate," and KBH's operations were refreshingly transparent.
The numbers initially appeared compelling. With operating margins of 21.25% and net margins of 9.46%, KB Home demonstrated profitability discipline even as the housing market navigated changing conditions. Its 3-year EPS growth rate of 28.9% signaled strong execution despite macroeconomic headwinds.
The moat question proved more challenging. While KB Home's established brand (dating back to 1957), geographic diversification, and integrated mortgage services offered some competitive advantages, homebuilding remains an industry where true moats are elusive. Any edge KB Home possessed was moderate at best—a yellow flag in our Buffett-inspired framework.
Debt metrics, however, looked reasonable. With a cash-to-debt ratio of 0.35, debt-to-equity of 0.49, and an interest coverage ratio between 7 and 9, KB Home managed its obligations prudently. Its Altman Z-Score of 4.12 confirmed minimal bankruptcy risk—precisely the kind of financial stability Buffett seeks.
Valuation presented interesting contradictions. While KB Home traded at attractive multiples relative to peers (P/E: 6.68 vs. industry median: 9.46; P/B: 1.22 vs. 1.82; P/S: 0.76 vs. 1.12), our proprietary models calculated an implied value of just $54.81—suggesting the stock was already trading above fair value at around $70.
KB Home earned a solid 8.3/10 on our Simple Score, but we established a Good Buy Price of $52.14—significantly below its then-trading price. The stock has since experienced a substantial correction, falling 17.74% since our article. Interestingly, it has now reached close to our calculated entry point, with returns from our Good Buy Price sitting at a modest 7.40%.
Summary Judgment: A quality homebuilder with strong fundamentals but vulnerable to housing market cycles. Our disciplined valuation approach spared readers from substantial losses, proving once again that price discipline matters more than company quality when markets are frothy.
Our Current Favorite Berkshire Buy: ACGL
Article Written: 3/12
YTD returns: 0.51%
Returns Since Article: 4.97%
Good Buy Price: $130.00
Current Price: $93.42
Arch Capital Group (NASDAQ:ACGL) represented insurance investing at its finest—a sector Buffett himself has called "the most important business at Berkshire."
We examined this $33.82 billion market cap insurance powerhouse when it was demonstrating exceptional underwriting discipline across its three core segments: specialty insurance, reinsurance, and mortgage insurance. With net income of approximately $4.3 billion in 2024, Arch exemplified the kind of operational excellence that Buffett has built his empire upon.
The financial picture was undeniably strong. Over a decade, Arch grew revenue from $3.6 billion to over $16.9 billion, while EPS jumped from $2.01 to more than $11.00. Net margins consistently outperformed the property and casualty sector, ranging from 20-25%, while Return on Equity reached an impressive 21-22%—far above industry averages. These figures confirmed what disciplined underwriting and strategic market positioning can achieve.
Arch's economic moat stemmed from three key advantages: multi-line diversification (spreading risk across primary insurance, reinsurance, and specialized mortgage lines), superior underwriting skill (consistently outperforming peers on combined ratios), and a global reputation that created sticky relationships with major ceding insurers. The gap between Arch's ROIC (21-22%) and its WACC (6.5%) demonstrated conclusively that the company was generating substantial excess returns—the definitive sign of a durable competitive advantage.
Debt metrics were equally impressive. With a debt-to-equity ratio of just 0.13 (the lowest in a decade), debt-to-EBITDA of 0.56, and interest coverage of 32.73×, Arch maintained a fortress balance sheet capable of weathering even severe insurance cycles or catastrophic events—exactly the disciplined approach Buffett demands.
Valuation offered a compelling entry point. Arch's PEG ratio of 0.37 sat well below the "fair value" threshold of 1.0, while our DCF analysis calculated an intrinsic value of $350—suggesting an extraordinary 74% margin of safety. The Peter Lynch Fair Value calculation yielded $280, placing Arch's share price at just 0.32× that measure.
Arch scored an exceptional 9.1/10 on our Simple Score and has delivered a solid 4.97% return since publication.
At the current price of $93.42, it remains significantly below our good buy price of $130.00—presenting a rare opportunity to acquire a world-class insurer at a substantial discount.
Summary Judgment: A Buffett-perfect insurance investment combining disciplined underwriting, multi-line diversification, and exceptional returns on capital—all available at a price that offers a substantial margin of safety.
Alright Buffett, whenever you’re ready to critique me — send it my way!
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Founder of TSS