Six Buffett-Style Small-Caps

As the chairman of a company that has about $280 billion in total assets--including more than $35 billion in cash--Warren Buffett's investment decisions are, naturally, a bit different from those of most investors.
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Because of its huge size and the amount of money it invests, Buffett's Berkshire Hathaway (nyse: BRK - news - people ) generally has to focus on very large firms: Coca-Cola (nyse: KO - news - people ) ($134 billion market cap), American Express (nyse: AXP - news - people ) ($56 billion cap), Johnson & Johnson (nyse: JNJ - news - people ) ($188 billion cap) and Wells Fargo (nyse: WFC - news - people ) ($94 billion cap) are among some of its major holdings.
But if Buffett weren't constrained by Berkshire's size--if he were working with a similar investing universe as the rest of us--what would he buy?
A question along these lines was posed to the "Oracle of Omaha" during Berkshire's annual meeting earlier this month, when an investor asked him how Berkshire would invest differently if it had only a few million to work with, Buffett responded that most opportunities are likely in small stocks, or in distressed bond situations.
That advice got me thinking about whether any smaller stocks get approval from my Buffett-based "guru strategy"--a computer model I developed that mimics Buffett's approach. Sure enough, I found that my model is high on a handful of small-caps, as well as some smallish mid-caps.
One stock that scores particularly high is Landstar System (nasdaq: LSTR - news - people ), a Jacksonville, Fla.-based firm that provides specialized transportation and logistics services--primarily trucking--throughout the U.S., as well as in Canada, Mexico and other countries.
Landstar, which has a market cap of $2.85 billion, has several "Buffett-esque" qualities. First off, the firm's earnings per share have increased every year for the past decade, rising from $0.39 to $1.99. That's key for the Buffett method. Ever the conservative, he likes firms whose earnings are predictable, and 10 straight years of EPS increases is about as predictable as you can get.
Another way Buffett targets solid, conservative stocks is by looking at debt. My Buffett-based model likes firms that generate enough earnings that they could, if need be, pay off all their debt within two years. Landstar's total debt is $124.2 million, and its annual earnings are $109.2 million. It could indeed pay off its debt in less than two years using those earnings, a great sign.
Buffett is known for seeking out companies that have what he terms a "durable competitive advantage" over their peers--a strong brand name, the lowest prices--that make it very difficult for other companies to compete with it. A sign of a company with such an advantage is a high return on equity. My Buffett-based model looks for firms that have average ROEs of at least 15% over both the past three years and the past 10 years--and which haven't had an annual ROE lower than 10% in any year of the past decade. That's a difficult task, but Landstar passes with flying colors. Its average three-year ROE is 49.5%, its 10-year ROE is 36.5%, and it hasn't posted an annual return on equity lower than 28.9% in any year of the past decade--very impressive numbers.