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Warren Buffett's 6 Biggest Stock Buys in 2012

Michael Vodicka

Warren Buffett is one of the most successful investors in the world. His investment strategies and ability to pick long-term winners has catapulted him to become the second-richest person in the United States, with a net worth of more than $53 billion, according to Forbes.

So when Buffett buys stocks, the market doesn't just listen, it follows. This is frequently referred to as the "Warren Buffett effect," where news that the Oracle of Omaha is initiating or adding to a position can generate sharp interest in a stock and up its bid.

In his latest form 13-f filings, a quarterly report of equity holdings that institutional investment managers with at least $100 million in equity assets under management are required to file, Buffett's largest stock purchases of 2012 were revealed.

Knowing his main interests and major stock picks can help regular investors like you and me to detect a safe and compelling investment theme or winning market trend. These are the types of investments you would find in Elliott Gue's Top 10 Stocks newsletter, which covers stocks offering market-beating gains and strong dividend yields.

With this in mind, here is a list of Warren Buffett's six biggest stock buys in 2012.

Buffett's six biggest stock buys of 2012

As you can probably tell, the group has many of the classic traits that have come to characterize a "Buffett investment." All stocks are leaders in their respective industries. They are also protected by a wide moat, which means they operate in industries with high barriers to entrance, making it difficult and capital-intensive for newcomers to challenge incumbents. Buffett's six biggest stock purchases of 2012 are also characterized by strong long-term growth potential at a compelling valuation, because much like many consumers across the world, Buffett loves a good deal.

Of the six featured, I particularly like National Oilwell Varco (NOV) because of its attractive valuation and DaVita HealthCare Partners (DVA) because of its leverage against the bullish trend in health care.

National Oilwell Varco

National Oilwell Varco is a leading provider of equipment and components to the oil and gas drilling industry and has a market cap of $28 billion.

Even though Buffett bought more than 5 million shares in 2012, one of his six-largest stock buys, it hasn't been enough to push shares up -- they're still down 16% in the past year. This short-term weakness is consistent with general weakness in energy stocks after a big collapse in natural gas prices, but the long-term outlook for National Oilwell Varco is bullish.

Analysts are looking for 4% earnings growth, but expect demand to pickup in 2014, calling for 14% earnings growth. The five-year growth rate is even better, projected at 17% annually. The weakness in shares while earnings have held mostly strong has created compelling value in the stock. Shares currently trade with a forward price-to-earnings (P/E) ratio of 11, a sharp decline to its 10-year average of 17.

DaVita HealthCare Partners
DaVita HealthCare Partners is a leading provider of kidney dialysis services, owning and operating hundreds of kidney dialysis centers across the United States.

Much like other stocks in the health care sector, DaVita has been hot in the past year, posting a market-beating 36% gain in the past 12 months. No doubt that was helped by Buffett's interest in the company. The Oracle of Omaha bought 10.9 million shares in 2012 to become its largest shareholder with a 16% stake. DaVita is taking an aggressive approach to growth, acquiring close to 100 new dialysis centers in 2012, while opening another 70. That has analysts looking for big gains in 2013, projecting 20% earnings growth for the year.

The long-term outlook is bullish too, with analysts looking for annual earnings growth of 13% in the next five years. But in spite of the stock's big gains and bullish growth projection, DaVita still trades with a PEG ratio of 1.23, directly in line with its peer average.

Risks to Consider: With Buffett already deploying big money into these stocks, one of the biggest institutional investors is already in the trade. Although there could be plenty of follow-up interest, Buffett has already staked out large positions in each stock.

Action to Take --> Considering Buffett's long-term approach to investing means he thinks the group is set for big gains in the years to come. National Oilwell Varco and DaVita HealthCare Partners especially caught my attention because of their strong long-term growth potential and compelling valuation.

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