With 15% annual earnings growth over the last five years and a projected 9.8% for the next five, perhaps McDonald’s (MCD) does. The dividend yield is 3.3%, and its growth rate has been 13.9% annually over the last five years.
The stock is likely to be more volatile than Buffett might like over the next quarter or two, as the company laps some tough growth comparisons, but after that it would seem to be a good candidate for the club. (McDonald’s is a member of my Jubak’s Picks portfolio.)
I’d call DaVita HealthCare Partners (DVA) another potential Heinz-like stock in the making. The kidney dialysis market is growing at an almost certain 4% a year, as more and more of the US population develops diabetes.
DaVita’s earnings growth rate over the last five years is an annual 15.1%, and the consensus annual growth rate for the next five years is 12.7%. The stock doesn’t pay a dividend. Buffett has been accumulating shares of DaVita at a steady pace in recent quarters.
Though the shares trade at just 15.5 times projected earnings, I’d still be cautious on DaVita over the next few months. It gets much of its reimbursement for dialysis services from the federal government (66% of revenue comes from Medicare and Medicaid), and payment rates are definitely at risk if the threatened budget sequester goes into force. (Rates for bundled services that include dialysis and a diabetes drug took a cut in the fiscal cliff settlement.)
It’s possible that DaVita will show a miss in the next quarter or two, if its ability to cut costs to preserve margins ends up lagging changes in government policy. But any miss would likely be a short-term problem because DaVita has a history of effectively cutting costs to preserve margins, and its size gives it substantial bargaining power with suppliers.
6. Abbott Laboratories
Another Jubak’s Pick, Abbott (ABT) is tough to put numbers on after its January breakup. But the Abbott Laboratories piece picked up much of the company’s predictable, high-growth businesses, such as nutritionals, where sales grew 8% in 2012.
If the new company can deliver the cost reductions and margin increases that Wall Street expects—a roughly 5-percentage-point improvement in margins by 2016—this will also fulfill its promise and become a Heinz-like stock.
7. Yum Brands
This stock belongs in the group, too, if it can correct the big hit it took to growth in China when suppliers to its KFC chain were found to have sold the company chicken with levels of antibiotics that exceeded government health standards.
This has turned into a major marketing debacle for Yum! (YUM), resulting in Chinese customers questioning the quality of its food and staying away from KFC in droves. The company has projected a 25% drop in same-store sales in China in the first quarter, a big problem because China represented 42% of operating profit in 2012.
The risk here is that Wall Street is still underestimating how long it will take to restore customer faith in KFC. I’d wait for more information on how sales are trending in the remainder of this quarter and into the spring. But this is certainly a potential Heinz-like stock once Yum! gets past this problem.
You may have to wait a quarter or so on some of these before you’ve got enough information and the right price to make a buy. But we can afford to be more patient than Buffett right now. We don’t have $48 billion in cash demanding to be put to work in something.
Thank goodness for that, right?
Jubak Global Equity Fund. That fund may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of September, see the fund’s portfolio here.