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The Equitymaster Research Digest

Buffett's Love for Utilities, Managing ValuePro, and More...
Jan 13, 2016

In our research team meetings, whenever the discussion turns to the kind of stocks that Buffett would buy, many of the names that come up are from the FMCG space.

This does not surprise me. The typical FMCG company ticks all the right boxes for Warren Buffett. Strong brands, not much capex, the ability to generate sufficient cash, healthy dividend payouts - these are just some of the key traits that make these businesses so compelling. Little wonder then Coca Cola continues to be Buffett's favourite stock.

But these same qualities can be a weakness too. Indeed, such companies, more often than not, command very hefty premiums, greatly diminishing the chances of buying them at a sufficient margin of safety.

So it becomes necessary to cast the net a bit wider. Indeed, one can look beyond the FMCG space to find good businesses.

Utilities, for example. Utility companies provide public services such as electricity, gas, telephone, water, and transportation. Typically, though many are privately owned, these companies are regulated by either the central or state governments.

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