Why This May Be the Perfect Time to Chase Warren Buffett’s Largest Stock Picks

25-Dec-2017

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Coca-Cola Co. (NYSE: KO) was an $18.0 billion stake, and like Amex the size of this share count has been static for years. The last stock price of $47.00 was under the $48.37 consensus target price. Coca-Cola’s dividend yield is also more than 3%. The shares have traded as high as $47.48. Its stock has risen by 14% so far in 2017.

DaVita Inc. (NYSE: DVA) is a portfolio manager pick rather than a pick made by the Oracle of Omaha himself. Still, this had a $2.2 billion stake value, and the $54.50 current price implies upside of more than 13% to the $62.00 consensus target price. This stock has a 52-week high of $70.16 as well, but it is down almost 15% year to date.

Goldman Sachs Group Inc. (NYSE: GS) was a stake valued at $2.6 billion, and the current price of $236.50 is well under the consensus target price of $249.44. Goldman Sachs has been held since the financial crisis, and the dividend yield today is about 1.2%, with a lot of dividend hike potential. The 52-week high is $255.15. Shares were last seen down about 1% so far in 2017.

International Business Machines Corp. (NYSE: IBM) has been a whipping boy after being previously and currently shrunk down by Buffett. The value of that IBM stake at the end of 2016 was $13.5 billion, but it was still over $5 billion at the end of September. IBM’s last share price of $147.25 is against a consensus target price of $163.45, implying 11% upside, before even considering that IBM also has a dividend yield of 3.9%. Its 52-week high is all the way up at $182.79, so imagine what happens if IBM ever gets its revenue trends growing again. IBM’s stock is down 10% so far in 2017.

Kraft Heinz Co. (NASDAQ: KHC) is a huge stake with market value of more than $25 billion and a carrying value of $15.7 billion at the end of September. At $79.05 on last look, Kraft Heinz has a consensus target price of $89.17. That target is also more than $7 less than it was just 90 days ago. The stock has struggled this year, with shares down 9% so far in 2017.

Moody’s Corp. (NYSE: MCO) is a smaller stake in total shares held compared with before the recession, but this was at a $3.4 billion value at the end of the third quarter. Moody’s was recently trading at $142.35, with a consensus analyst target of $150.50. Moody’s has a 1% dividend yield and a 52-week high of $148.00. The stock is up over 50% this year alone.

Philips 66 (NYSE: PSX) was a stake valued at more than $7 billion at the end of the quarter. At $92.75 on last look, Phillips 66 has a consensus target price of $96.56. It has traded as high as $95.00 this year, and it has close to a 3% dividend yield. The shares were last seen up 7% so far in 2017.

U.S. Bancorp (NYSE: USB) was a $4.5 billion stake at the end of the third quarter. The trust bank’s share price of $51.92 on last look compares with a consensus target price of $55.96. It also comes with a 2.2% dividend yield, and its 52-week high is $56.61. Its stock was last seen up just 1% so far in 2017.

Wells Fargo & Co. (NYSE: WFC) was a $26.9 billion stake, and frankly this was the first time that Berkshire Hathaway had really been a net seller of the stock (even if just a few million shares were sold). Wells Fargo was last seen trading at $53.60, well under the consensus target price of $58.04. That consensus target was $57.70 a month ago and $57.83 two months ago. The 52-week high is $59.99, but investors now get a 2.9% dividend yield on top of the expected upside. Wells Fargo shares may have suffered from the account opening scandal and lagged banking peers as the stock was last seen down 2% so far in 2017.

Buffett and his portfolio managers still held key airline stakes worth almost $9.2 billion combined as of September 30. These are broken out as a group here because this was effectively an entire sector-investment, based on the ability of airlines to now dictate price and terms for people to fly the not-so-friendly skies.

American Airlines Group Inc. (NASDAQ: AAL) was a stake worth $2.23 billion, and the $47.10 share price implies upside of 20% to the consensus price target of $56.78. The 52-week high is $54.48, and the stock was down 2% so far in 2017.

Delta Air Lines Inc. (NYSE: DAL) was a stake worth $2.56 billion. Trading at $49.50, it has a consensus price target of $64.25, which implies upside of about 30%. Delta has a 52-week high of $55.75, and its shares were down less than 1% so far in 2017.

Southwest Airlines Co. (NYSE: LUV) was a stake worth $2.67 billion, and the $54.70 share price implies upside of over 20% to the consensus target price of $66.16. Southwest’s 52-week high is $64.39, and its shares were up about 8% so far in 2017.

United Continental Holdings Inc. (NYSE: UAL) was a stake worth $1.72 billion, and trading at $57.50, it has a consensus target price of $70.13, which implies upside of more than 21%. United Continental has a 52-week high of $83.04, but its stock was last seen down over 20% year to date.

It is not unusual to see stocks come with upside targets by analysts. After all, there are almost always twice as many Buy/Outperform ratings than Sell and Hold ratings combined. That being said, the traditional analyst Buy and Outperform rating now only comes with an implied upside of 8% or so.

Investors should understand that there are no assurances that stocks will rise or fall based on analysts’ target prices. Some analysts are wrong, and that includes some being bullish for too long. The recent pullback in stocks has put all of Buffett’s top stocks well under their consensus price targets. That is just not that normal.

 

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