Investing

Eleven Overvalued Warren Buffett Stocks to Sell from Berkshire Hathaway's Portfolio

Torchmark Corp. (NYSE: TMK) is another close to fully valued stock, but it is close to Buffett’s business in the insurance market even if the value is just under $6 billion. Buffett would point out that the firm only has a $270 million stake or so in it if he was pressed to recant why there is still value here. Its recent price of $63.96 implies only about 2.5% upside to the $65.50 consensus price target and its shares have traded in a range of $46.83 to $65.74 over the last year. That 1.1% dividend seems low for a company trading at 11-times expected earnings. The street-high price target is $56 for Torchmark.

VeriSign Inc. (NASDAQ: VRSN) is very unusual for a Buffet stock, and it is actually from one of his newer portfolio managers. The company is smaller than most Buffett stocks, with a market cap of less than $7 billion. VeriSign’s recent price of $45.46 comes with a 52-week range of $32.81 to $50.15 and implies only 3.5% upside to the consensus target of $47.05. This stock has a volatile enough of a past that 3.5% upside is just not enough reward. VeriSign also pays no dividend and trades at just over 20 times earnings. Perhaps the only saving grace for Team Buffett is that they can point out that one analyst thinks VeriSign can trade up to $56.00.

Visa Inc. (NYSE: V) is a companion stock to MasterCard Co. (NYSE: MA) in exposure to the world of transactions, but Visa has less implied upside, even with a $116 billion market cap. Its recent price of $179.35 has only 3.7% implied upside to the consensus price target of $186.06, and its 52-week range is $114.26 to $184.90. Its dividend is a paltry 0.7% and Visa trades at nearly 24 times expected earnings. Apparently the trading team is worried about the valuation too, because the 1.55 million shares is actually lower than it was in 2012. The one bit of cover that may keep the team from panicking is that one analyst thinks the stock is worth $241.

Wells Fargo & Co. (NYSE: WFC) is the largest and most well-known position of the entire Berkshire Hathaway empire. Even if we voted this the safest large bank in America for 2013, it is above book value and close to its consensus price target. The bank’s recent price of $40.72 comes with only an implied upside of 1.3% to the $41.26 consensus price target. At least this is a safe huge bank without the major trading branches, and it does have a 3% or so dividend yield. The stock has traded briefly above the target, as the 52-week range is $30.34 to $41.59. Buffett is sitting on large profits here, and he keeps raising the stake each quarter. Still, Buffett has to pay attention at some point because the value of this 458 million share stake today is worth more than $18.6 billion. Buffett also might point out that Wells Fargo’s top price target on Wall Street is all the way up at $48 for the stock price.

And then there are the stocks classified as truly overvalued. These stocks in the Berkshire Hathaway portfolio are trading above what the consensus share price target is.

American Express Co. (NYSE: AXP) may seem overvalued for new investors, as the share price of $76.24 compares to a consensus price target of $72.09. Buffett’s stake is more than 151 million shares and is worth close to $11.5 billion. He might point out that one analyst thinks it is worth $89 per share, but the truth is that this one of the long-term holdings and has been extremely profitable for Berkshire Hathaway. Old Warren does not even have to care if the yield is 1.2% for new investors because it is much higher based up where Berkshire Hathaway owns the stock.

The Bank of New York Mellon Corp. (NYSE: BK) might have been lightened up a tad by Berkshire Hathaway. At $29.51, the stock is above the consensus price target of $29.25, even if the street-high target price is $33 for the custodial bank. This pays a 2% dividend yield, and the stake’s value of $560 million or so compares to a market cap of $34 billion.

GlaxoSmithKline PLC (NYSE: GSK) is an American depositary receipt (ADR), so we will not spend much time dwelling on the price here. Its ADRs recently traded at $51.18, and the consensus price target is listed as $48.56. Note that there are only four U.S. price targets in that “consensus,” and Buffett probably has forgotten that it is even in the portfolio, with its value being less than $80 million.

Moody’s Corp. (NYSE: MCO) is one that Buffett has said he has good profits in, but Buffett might agree that it is overvalued because he has reportedly sold more shares since the last portfolio cut-off date showing a $1.85 billion stake still worth more than 10% of the whole market cap. It is at $64.96, and the consensus Moody’s price target is $60.56 on the stock. Buffett might also point out that one analyst thinks Moody’s will rise to $79 over the next year.

The Washington Post Co. (NYSE: WPO) is another long-term position and is likely tied to Buffett’s newspaper dynasty ambitions. The 1.72 million shares are worth close to $800 million of the entire $3.4 billion market cap as well. Buffett promised to keep this holding even after he stepped down from its board of directors. It is at $457.13, compared to a prior screen consensus price of $275, but it turns out that there really is no consensus price target as we have no current or recent research reports at all. The trading range is $327.00 to $486.55 over the past year, but we would point out that this traded above $900 back in 2004.

Again, here are the cheapest stocks from the Berkshire Hathaway stock portfolio.