Berkshire Hathaway Inc. (NYSE: BRK-A) and Warren Buffett released their full stock holdings for 2013 on Thursday after the close. Earlier in the week we highlighted how Berkshire Hathaway shares were not just outperforming the other conglomerates, but outperforming the broad stock market, That continues today:
- Berkshire A-shares at 149,240.00, up 11.32%
- DJIA 13,973.39, up 6.63%
- S&P 500 1,521.38, up 6.67%
One thing we noticed when we first looked at the holdings leading his portfolio value higher was that Buffett's portfolio has many stocks that are still attractive. It also has many old legacy positions that the investment team should sell out of. 24/7 Wall St. screened the dozens of holdings listed to identify the dogs in the portfolio or the positions that are too small to even matter now. This is a list of stocks that Warren Buffett and Team Berkshire should sell now.
These are not ranked in any order at all, other than how they are listed alphabetically on our full list of the Berkshire Hathaway holdings. The implied upside (when noted) is based on the Thomson Reuters consensus price target. Buffett is considered to be a value investor who buys great companies that he thinks he can hold forever. The new portfolio managers are Todd Combs and Ted Weschler, and they do not necessarily hold the same forever timeline. Some of these "stocks to sell now" are from the new managers, while others were picked by Buffett himself and have been on the books for years.
Read Also: Berkshire Hathaway's Full Stock Portfolio for 2013
The first one that Buffett should sell is none other than General Electric Corp. (NYSE: GE). While this is our Top Conglomerate Pick for 2013, the GE stake is just too small to matter at Berkshire Hathaway. The company only owns 588,900 shares, and that was way down from prior quarters. If Buffett does not want to sell then maybe he should add to the position again. Some of this may be left from when it had the huge preferred stake, but a position worth $14 million is just too small for Berkshire Hathaway to mess around with. GE now yields about 3.2% after hitting a new multiyear high.
Johnson & Johnson (NYSE: JNJ) was a lower position yet again, at only 327,100 shares. This used to be a large holding for Berkshire, with millions and millions of shares. The company has been selling shares as is, but it needs to just clear out of the position. This is worth almost $25 million today, and that is just not worth the effort. One thing that may be keeping Buffett interested is that Johnson & Johnson still yields 3.2%.
Lee Enterprises Inc. (NYSE: LEE) was lowered before, and it was lowered again. What is amazing is that this is down to only 88,863 shares. That is hardly worth mentioning, with a value of almost $130,000. This is a position that Buffett has tried to keep confidential, and it ties into his current local media and newspaper ownership.
Team Buffett owns both MasterCard Inc. (NYSE: MA) and Visa Inc. (NYSE: V). While we can appreciate them wanting to participate on the "credit card toll road" trade, the historic aim of Buffett to make a big bet and to gain influence as a "partner" just does not apply when you own both. To top it off, Berkshire Hathaway owns more than $9 billion worth of American Express Co. (NYSE: AXP) and has had that position for years and years. The Visa stake is worth more than $240 million today, and the MasterCard stake is worth about $211 million. Both have low dividends of less than 1%, and the implied upside to the consensus analyst targets is 10.3% for MasterCard and 10.8% for Visa. We will leave it up to Buffett's two new portfolio managers to decide which one is better, but they ought to sell one and make a larger bet on the other. Both have very large market caps, and Berkshire Hathaway can easily do much more than a $200 million position.
Another almost split decision is between Kraft Foods Group Inc. (NASDAQ: KRFT) and Mondelez International Inc. (NASDAQ: MDLZ). The latter is a position due to the spinoff from the former Kraft Foods, and Buffett already had sold shares of Kraft. With the Kraft stake being worth only worth $79 million, and with Mondelez being worth some $341 million as of now, the decision looks simple. It is time to get out of the old Kraft position. Buffett had been a seller on it anyhow. The only problem is that Kraft still yields more than 4%, against about 1.9% for Mondelez. That being said, Buffett has enough exposure to food now through the H.J. Heinz Co. (NYSE: HNZ) preferred deal.
Moody's Corp. (NYSE: MCO) is another position that we just don't get. What happened to "avoid companies you do not understand" as part of the Buffett investing strategy? This was listed as 28.4 million shares, worth more than $1.4 billion at the end of 2012. This position was the same as the prior quarter, but it was way down from earlier quarters and years. The most recent government suit against S&P highlights that the ratings agencies still have a lot of risk. Buffett rode this one all the way down and back up during and after the recession, but just recently Bloomberg pointed out that Buffett might have lost close to $300 million in value on this of late. Moody's remains a position that we consider as being a "legacy position." We would bet serious money that neither Todd Combs nor Ted Weschler would commit new capital to this position if this was being evaluated as a new "buy, sell or hold" without knowledge that Buffett has stayed in this for years and years. The 1.7% dividend yield is also not enough to entice the team to stay in Moody's.
United Parcel Service Inc. (NYSE: UPS) is another one we just don't get. Team Buffett kept the same stake of only 59,400 shares, worth less than $5 million at the end of 2012. They already had trimmed this from a 2012 peak of almost 1.43 million shares, and this hardly seems worth the Berkshire Hathaway effort. We really do not see anything wrong with the position as it hit a new 52-week high on Friday, and the analysts still have an implied upside of about 6.5% on UPS. The 2.8% dividend is also attractive. Our take is that Todd Combs or Ted Weschler simply forgot to sell out of the rest of this position.
Verisk Analytics Inc. (NASDAQ: VRSK) is a position taken on by the new managers in the portfolio. The team already lightened up even starting a year ago. The company made good gains here on a percentage basis, but it seems that the easy money has been made here, since shares have doubled from the late-2009 initial public offering. The market capitalization is up over $9 billion now, and at some point this company is going to have to find serious new markets with entirely different analytical products to drive value. The consensus analyst target only implies only 1.4% upside to the $55.55 target, but the peak analyst target implies closer to 15% upside ($63 is high target, versus $54.75 today). At almost 30 times trailing earnings and at almost 24 times forward earnings, this analytics outfit is going to have to get its growth from monitoring health care fraud to drive future growth. Verisk also pays no dividend now. Even if upside to the $9 billion market cap can be gained, it sure looks like the easy money trade has been made here.
The Washington Post Co. (NYSE: WPO) stake of about 1.72 million shares is currently worth about $710 million. This is a long-standing Buffett position and may be strategic, considering the media and papers that Buffett has gotten Berkshire Hathaway into. The problem here is that we are about as certain as we can be Todd Combs and Ted Weschler would both give the thumbs-down verdict on this position if they were evaluating it as a fresh "buy, sell, or hold" position with new money, if they did not know the Buffett history here. Buffett already left the board of directors here, and he promised to hold on to Washington Post shares for the long haul. That is fine, but Buffett's successors are very likely to try to figure out how to get out of this position. The 2.4% dividend yield will not be enough to sway them. As a caveat, we cannot help but notice that Washington Post shares just hit their highest level since mid-2011. We also cannot help but notice that this is worth only about 40% of its peak value before 2005.
Filed under: 24/7 Wall St. Wire, Banking & Finance, Buffett, Conglomerates, Dividends & Buybacks, Personal Finance, Value Investing Tagged: AXP, BRK-A, BRK-B, featured, GE, HNZ, JNJ, MA, MCO, UPS, V, VRSK, WPO