Warren Buffett has a different timeframe than most investors. Unless he sees something drastic to the long-term fundamentals, he maintains a near-forever outlook when he invests in or buys companies for Berkshire Hathaway Inc. (NYSE: BRK-A). What we wanted to do was peruse the Warren Buffett and Berkshire Hathaway portfolio of common stock holdings and then see which stocks of the portfolio had the most implied upside in 2010 compared to consensus analyst price targets. The stocks which made the screen are Bank of America Corporation (NYSE: BAC), ConocoPhillips (NYSE: COP), Comcast Corporation (NASDAQ: CMCSA), Gannett Co., Inc. (NYSE: GCI), General Electric Co. (NYSE: GE), Iron Mountain Inc. (NYSE: IRM), Kraft Foods Inc. (NYSE: KFT), NRG Energy, Inc. (NYSE: NRG), SunTrust Banks, Inc. (NYSE: STI), US Bancorp (NYSE: USB), and Wells Fargo & Company (NYSE: WFC).
Many value investors chase the Buffett stocks, and that full list of latest holdings is here. What we looked for was the current price (late morning stock price snapshot on Wednesday 12/30/2009), the 1-year mean price target from Thomson Reuters, and what the implied upside was for these stocks to the mean price target. Lastly, we have offered some analysis on each stock to explain the upside or for expanded coverage ahead.
Bank of America Corporation (NYSE: BAC) $14.99 and 1-year mean price target is $21.11, implying upside of 40%.
- BofA has been a serious mover from the bottom, but has petered out in the last three months. Whether being out of the TARP and under a new CEO can get this one up close to its 1-year mean target of $21.11 is still up for debate. Moynihan takes over officially at the start of the year and his public strategy so far is to go execute on the bank operations in place rather than to make acquisitions and rather than busting the company up.
ConocoPhillips (NYSE: COP) $50.67 and 1-year mean price target is $58.50, implying upside of 15.5%.
- ConocoPhillips has already indicated his plan to exit these shares at a loss after he got the timing so wrong. But this stock has recovered handily from lows whether Buffett goes more into Exxon Mobil (NYSE: XOM) or not. This was one of our energy stocks we also picked which could double from the bottom.
Comcast Corporation (NASDAQ: CMCSA) $17.02 and 1-year mean price target is $19.45, implying an upside of 14.2%.
- Comcast is the other side of the NBC-Universal deal with GE. It is also arguably one the youngest sectors which Buffett has invested in as he generally prefers industries with longer track records and those which are measured by raw earnings and return on equity rather than EBITDA.
Gannett Co., Inc. (NYSE: GCI) $14.95 and 1-year mean price target is $17.20, implying upside of 15%.
- Gannett is in the media sector, so you know how risky that is. Buffett has been ‘long and wrong’ here for some time and the consensus data in media earnings and revenue expectations vary wildly from analyst to analyst.
General Electric Co. (NYSE: GE) $15.29 and 1-year mean price target is $17.33, implying upside of 13.3%.
- GE is technically the lowest of the upside stocks and was included because four of these stocks were banking stocks. GE is also the one wild card out there today. The average analyst price target has always been a difficult one at GE and analysts have gotten the stock wrong on the way up and the way down. If 2010 is a year of better recovery with less worry of a double-dip recession, then it could see significant upside estimate changes from analysts. The risk is still in its financial exposure and its inability to pare off some of the assets outside of the NBC-Universal move of late. Buffett also has a large GE preferred share holding on top of his common stock holdings.
Iron Mountain Inc. (NYSE: IRM) $23.00 and 1-year mean price target is $33.50, implying upside of 45.6%.
- Iron Mountain shares have sort of floundered considering the rest of the market. It seems that as businesses have cut down on many areas of spending, that they are seeking less outside document storage. The $33.50 mean target is also above the 52-week high of $32.04 and well above today’s prices. The chart has tried to base out, but it has been in decline since mid-summer.
Kraft Foods Inc. (NYSE: KFT) $27.42 an
d 1-year mean price target is $31.90, implying upside of 16.3%.
- Kraft is in a pickle of its own doing. The 52-week high is $29.84 and it is not exactly an expensive stock. But now the company has itself in the Cadbury deal (it hopes) and the stock has been dead money. Buffett is the largest Kraft holder and he has not been exactly vocal against the notion of this merger.
NRG Energy, Inc. (NYSE: NRG) $23.92 and 1-year mean price target is $30.08, implying upside of 25.7%.
- NRG is well under its 52-week high of $29.26 from over two months ago. This is a ‘value stock’ under most screens, but the problem is that most analysts expect declining earnings in 2010 despite expectations of higher revenues.
SunTrust Banks, Inc. (NYSE: STI) $20.20 and 1-year mean price target is $23.73, implying upside of 17.4%.
- STI’s target of $23.73 is well under where this stock was a year ago. That price is also in-line with the peak prices of the recovery so far in 2009.
US Bancorp (NYSE: USB) $22.31 and 1-year mean price target is $27.07, implying upside of 21.3%.
- USB is another one of the Buffett banks that is believed to be ‘safer’ than others. The $27.07 mean price target is above the 52-week high of $25.59.
Wells Fargo & Company (NYSE: WFC) $26.55 and 1-year mean price target is $32.08, implying upside of 20.8%.
- This is said to be Buffett’s favorite bank and Berkshire Hathaway is the largest single holder of its common stock. It is no longer under the TARP and got out from under that without any added help from Uncle Warren. We’d also note that the $32.08 mean price target is above the 52-week high of $31.53.
There are a few issues to note here. First and foremost, with 4 of the 11 stocks with the most implied upside being banks the ‘formal’ targets are obviously up for grabs. Many do not trust consensus data on big financial stocks and there are many who discount the earnings and price target data entirely.
Another issue to note is that with this data being from Thomson Reuters it can always have a lag to it as consensus analyst price targets are sometimes slower to catch up on public sources than consensus earnings or revenue data.
Another issue to consider is whether Buffett will get any closer to naming a replacement. Each year this becomes a larger and larger speculated issue after the new year and each year so far it is something which will be addressed down the road. It is obvious that Warren does not want to hang up his badge, so unless he has a health issue arise we won’t spend much time on that issue.
Lastly, we took all opinion out of this except for in the conjecture provided on each stock. This was going to be a 10-stock list, but we did not want to see 4 of 10 be in banking.
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JON C. OGG
DECEMBER 31, 2009