Blue-chip specials from the Buffett menu

By Andrew Bary, BARRON'S — 10/23/10

Some recent investments by the legendary Warren Buffett have been slow to pay off. But these solid, well-run companies may still be a good—and inexpensive—bet.

There's no quibbling with Warren Buffett's extraordinary overall investment record, which has resulted in a $205 billion stock-market value for Berkshire Hathaway. But, in the past few years, Buffett has invested in some companies whose shares have been disappointing. Among them: ConocoPhillips, U.S. Bancorp, Kraft Foods, Sanofi-Aventis, Johnson & Johnson and even Wells Fargo.

All of these are strong, well-managed companies. Assuming Buffett hasn't erred, investors have the opportunity now to buy some of them for less than what Berkshire paid.

U.S. Bancorp, for instance, trades near 23, appreciably below Berkshire's average cost of $31. ConocoPhillips is at 61; Berkshire paid 73. French drug maker Sanofi's shares, at 34, are below Berkshire's cost of $40. Kraft is at 32; Buffett paid 33. We based the cost figures on data in Buffett's annual shareholder letter.

Buffett wouldn't discuss his equity investments. But in a CNBC interview in March 2009, he said: "I make plenty of mistakes…That's part of the game. You just got to make sure that the right things overcome the wrong ones." That's certainly true for Berkshire, whose Coca-Cola and Procter & Gamble holdings, which date back to the 1980s, are about 10 times above the company's cost.

Based on what Buffett has done in the market, he's gotten more bullish on Johnson & Johnson, and less excited about Conoco, Kraft and P&G this year; he has bought more J&J and pared his holdings of the others.

Many pros believe that, after a disappointing decade, blue-chip stocks will be one of the best investments over the next 10 years. Investing in those with the Buffett imprimatur could be a great way to share in that wealth.

Disclosure: I own Conoco, Johnson & Johnson, and Coca Cola