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

November 16, 2017 by Jon C. Ogg

Two traits are the key drivers in making a buy or sell decision in investing. One is fear and one is greed. After the continued stock market surge of 2017, the greed has won over the fear as this bull market is now nearing its ninth year. That great rally will come to an end one day, but one particular play on words now emulated the greed side of this bull market and then some — FOMO, or fear of missing out!

A problem is emerging now. As of November 2017, some investors are getting concerned that stocks have rallied too much and that the stock market may be ripe for a big sell-off. By November 15, the Dow Jones Industrial Average had sold off by over 300 points in less than a week. Still, it cannot be ignored that investors have become ever richer buying into each and every big market sell-off. That trend has been in place for than five years, and stocks haven’t sold off by 10% for almost two years now.

If investors are scared to be in the market, perhaps following the smartest grandpa strategy might be the best pursuit in a chicken-bull strategy. This would allow those investors who are scared that the market has peaked to also not miss out on the bull market if it keeps charging higher.

When it comes to a smart grandpa strategy, Warren Buffett of Berkshire Hathaway Inc. (NYSE: BRK-A) may be the best person to emulate. After all, Buffett held the world’s wealthiest individual position title for some time. And he’s considered the world’s greatest investor of the modern era. If those titles are both true, this old grandpa has to know more than just a thing or two about investing.

24/7 Wall St. follows many of the so-called whale watching transactions. Quite simply, this is following what the smart money is buying and selling in stocks. We’ve already determined that Buffett is worth watching.

In mid-November of 2017, the markets have risen more than 200% since the March 2009 bottoms. And the post-election rally continued with major steam, with the Dow up over 18% and the S&P 500 up over 15%. Returns of that magnitude just aren’t normal, and the gains are even larger if you go back a full year to election day.

When evaluating if a stock is cheap or expensive, some investors need guidance. They might not understand if a P/E ratio or sales multiple or EBITDA multiple is good or not. This is where investors may start to look at what the pool of analysts has to say as a whole. The Thomson Reuters consensus analyst target price is the average (mean) of all sell-side analysts that are part of its analyst universe. If investors see the stock price trading under the consensus analyst target price, then they might think it’s a cheap stock as far as where the stock price is expected to go by a bunch of “smart” people.

Before thinking you can blindly trust analyst calls entirely, guess again. These are people, and people make mistakes. Sometimes some serious misfortunes pop up out of the blue. And sometimes even the smartest person in the room was working off a less-than-solid thesis.

24/7 Wall St. has perused the top holdings of Buffett by the size of his stake. One thing that stood out a day after Buffett showed which stocks he has been buying and selling is that all the major stocks he held were trading under their consensus analyst price targets. After tracking Buffett for two decades, and after considering the strength of this bull market, let’s just say that it’s not normal to see all the major holdings trading at a discount to what analysts are forecasting as a group.

Investors need to understand that the dollar valuations used for this analysis were based on the end of the third quarter. That being said, the share prices and the consensus target prices used here were used as of November 15. This report does not rank these by whether or not Buffett was buying or selling shares, but by name and value to keep consistency. After all, Buffett often sells a stock only to buy more later.

American Express Co. (NYSE: AXP) was a $13.7 billion stake, and trading at $93.40, it has consensus analyst target price of $95.29. American Express also comes with a 1.5% dividend yield, and it’s about to have a new CEO who might want a revamped strategy. American Express has traded as high as $96.90 in 2017, and its shares were up over 25% so far this year.

Apple Inc. (NASDAQ: AAPL) was a $21.3 billion stake for Berkshire Hathaway, but now its shares have sold off five straight days as profit taking has been seen. Trading at $169.50, Apple has a consensus target price of $186.57. Its 52-week high is $176.24. Even if investors worry that Apple analysts became too positive after earnings, the current share price is still under the $174 consensus target that was seen in October ahead of earnings. Apple’s sell-off has taken some strength out, but Apple was last seen up about 47% this year.

Bank of America Corp. (NYSE: BAC) was a $17.7 billion stake that came after Buffett converted its debt (imagine the tax he would have had to pay!). Shares were last seen at $26.80, with a consensus analyst target of $28.30. The dividend yield is 1.8%, and the 52-week high is $27.98. Shares are up 18% so far in 2017.


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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