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.
Buying back into financials? How about home builders? Click here for a free trial subscription to the Validea Hot List, to learn which stocks appeal to Buffett, Lynch, Graham and other gurus.
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. Read more...

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The 8 Steps for Starting a Business Online

Chose Your ProductsFind the needs or demands, not the products.Go to wordtracker (commercial) or overture (free), and look for well-searched keywords (searched a lot of times). Then, find a product related to those well-searched keywords. Being searched a lot of times means a lot of people are looking. If you find a product which a lot of people are looking for, you can sell it a lot.
Other things you may want to know about choosing products
Buy a Domain NameYou need your own domain name, not like YourISP.com/~UserName. You can get one less than $10/year. Though, don't buy any keyword-rich domain name. It won't give you a boost in search engine rankings. (At least, it isn't a significant factor.) Your domain name will be your own brand name, like aol.com or amazon.com. You don't want a keyword-rich domain for your brand name, do you?
Make Your SiteYou have only 8 seconds or less to grab visitors' attention. If you fail, they are gone. Moreover, if you confuse visitors, they are gone. You need to make a website that people want to brows.
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Get HostedForget about free hosting services; find a reliable hosting service. For conventional businesses, time is money. For internet businesses, uptime is money.
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Publish Your Own NewsletterUsing your own opt in list is the most effective way of marketing. Don't forget to ask visitors to subscribe to your newsletter.
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Sell It RightNo matter how many visitors you receive, you cannot make money if no one buys your product. To sell your product, you have to do it right.
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Get TrafficYou might already know that if your site is ranked high at any search engines, you will get a lot of visitors. But, that isn't the only way to get visitors. There are other things you can do to generate traffic.
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Test & ReviseSuccessful online business depends on consistent analyst and test. So, always analyze the results and find flaws. As you correct those flaws, you will make more money.
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6 Of The Worst Internet Acquisitions of All Time

Today some people question recent internet acquisitions such as Google paying 1.65 billion for Youtube, and Microsoft valuing Facebook at $15 billion. What they don’t realize is that companies of far less reach, making little to no profit, and having very vague business plans were bought out during the 1999-2000 Internet bubble for much larger prices. Here are the 6 worst internet acquisitions of all time:

1. Yahoo Buys Broadcast.com

In 1999 at the time of the internet boom, Yahoo! paid $5.65 billion for Broadcast.com, acquiring the company and renaming it Yahoo! Broadcast Solutions. Over the next couple years Yahoo split the services previously offered by Broadcast.com into separate services, Yahoo Launchcast for music and Yahoo Platinum for video entertainment. Platinum has been discontinued, its functionality being offered as part of two pay services, AT&T Yahoo! High Speed Internet and Yahoo! Plus, both of which turn little to no profit for Yahoo. The price tag on Broadcast.com ended up being $710 per user for Yahoo. That shows just how large the Internet bubble really was. What if Yahoo had invested that 5.65 billion into its search technology or even better yet bought out Google in 1999?

2. TimeWarner Merges with America Online

What was Ted Turner and company thinking? In the midst of dial-up becoming a thing of the past, they merge with the leading dial-up company in AOL. Although, almost 8 years after the merger Timewarner has made strides with AOL, Google now Owns 5% of AOL, and they are considering merging yet again with Yahoo who happens to have made the #1 biggest acquisition blunder. (as seen above)

3. AOL Buys Netscape

In 1998 when the Internet was just starting to creep into people’s minds, America online dished out $4.6 billion for Netscape, the leader in web browsing technology. The problem here was that Microsoft had just begun rolling out its Internet explorer web browser. Netscape now is used by under 2% of web surfers, and even Internet Explorer is second rate to Firefox, a totally free web browser. Netscape.com is now a news portal with relatively low popularity, losing money.

4. Yahoo Buys Geocities

In 1999, at the height of the Internet boom, Yahoo made another amazing acquisition, they thought. They dished out a mere $3.5 billion for Geocities. For those of you just starting out website creation back in 1999, Geocities was a free web host. At the time it was barely turning a profit, yet, we all had our heads in the clouds. Yahoo bought them the same year that they paid $5.6 billion for Broadcast.com. Today Geocities is barely alive, and far from turning a profit. They could have easily turned Geocities into a sort of social networking site like facebook or myspace, but you know how those Yahoo people operate.

5. @Home Purchases Excite.com

Also in the midst of the internet boom, @Home paid a staggering $6.7 billion for Excite.com. At the time it may have seemed like a good deal, considering Excite was #2 to Yahoo in internet portal traffic. I recall using excite as one of my main search engines back in the day. What happened since? Well it is quite amazing that they actually have users still. Now they are not even a search engine, they just use Yahoo, Google, and Ask.com’s data. They have a main portal page that resembles a 1999 version of Google Home, and continue to just barely survive with the help of Google advertising.

6. Terra Buys Lycos.com

In the midst of the Internet bubble collapse, this deal still managed to occur. Initially Terra, a relatively unknown company today, had agreed to buy Lycos for $12.5 billion. 6 months later when the final deal was struck, the sale price had fallen 60% to only $4.7 billion. Why? Because both company’s stock prices were crumbling before their eyes, as the internet bubble began to pop.. Today Lycos is nothing more then a second rate search engine that fills it’s results with ads.

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550 Domains Names owned Google

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