Investing

Are All of Warren Buffett's Top Stock Picks Still Grossly Undervalued?

Jon C. Ogg

Published: October 3, 2018 12:55 pm

Last Updated: January 11, 2020 4:56 pm

It may have become routine to say that the stock market keeps hitting all-time highs. Still, many investors find it hard (or even impossible) to win by investing in individual stocks. After all, the financial media reports always seem to have a cautious and worrisome tone regardless of how well things are going. There is also a persistent notion that the institutions and machine-trading systems make it impossible for retail investors to make any money. And finally, investors are routinely told that they should only invest in index funds.

So what are investors supposed to do with 2018 rapidly coming to an end and when the major equity indexes are effectively at all-time highs?

One way that many retail investors have tried to succeed in stock picking is by following the trends of the greatest market wizards. It’s a strategy called “whale watching,” and there is perhaps no greater whale than Warren Buffett.

At Buffett’s conglomerate of Berkshire Hathaway Inc. (NYSE: BRK-A), the largest non-operational effort is buying millions and billions worth of stock in some of the nation’s top public companies. Some of these holdings are picked by Buffett himself, and some are picked by one of other portfolio managers. At the end of the most recent quarter, in June, Berkshire Hathaway’s 13F filing showed over $195 billion in public equity holdings, compared with about $179 billion that had been represented in the quarterly earnings report.

After a quick review of Berkshire Hathaway’s top equity holdings, the one thing that stands out is that Wall Street itself thinks each one of these stocks is still poised to go even higher. As a reminder, the stock market is actually a market of stocks, and at any given point many stocks and sectors may not be at the all-time highs like the major indexes are.

There is a reason main street investors follow Buffett’s moves. He previously held the title of the world’s richest person. He is frequently in the media offering sagely advice to keep calm during times of selling, as well as reminding investors to not be euphoric just because the market is up. And Berkshire Hathaway is a conglomerate that often feels like a serious operating company, a hedge fund, private equity firm and a mutual fund all rolled up into one basket.

These are the top holdings of Warren Buffett, showing how the current share price compares to the consensus analyst price target from Thomson Reuters. Also shown is the current dividend yield based on current prices, and the recent trading history. Color has been added on each of Buffett’s top holdings. Most of these positions have been long-term holdings of Buffett and his team, but some are far newer than others.

American Express

American Express Co. (NYSE: AXP) has been a longstanding holding of Berkshire Hathaway. This stake was valued at $14.9 billion, and it is the same 151.61 million shares as at the end of June. While shares traded at $108.72 apiece, the consensus target price has risen gradually in recent months, up to $114.27.

Amex also has a dividend yield of over 1.4% and a 52-week trading range of $87.54 to $111.77. On October 1, Wells Fargo raised its price target on the shares to $122 from $155.

Apple

Apple Inc. (NASDAQ: AAPL) is one of Buffett’s newer top holdings, and it was an even larger stake worth $47.2 billion at the end of June. Buffett has even noted that he has added a little more since the end of the quarter. Without knowing the number of additional shares purchased, the current value could be closer to $56 billion today.

Apple’s current share price of $232.00 compares with a 52-week range of $234.77, but the expected price target has trended up with Apple’s share price in 2018. On September 27, JPMorgan started its Apple coverage as Overweight and assigned a $272 price target for what was already the world’s first $1 trillion company. Apple also has a 1.3% dividend yield.

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Bank of America

Bank of America Corp. (NYSE: BAC) is now a major holding for Berkshire Hathaway after Buffett converted preferred securities purchased shortly after the recession. This 679 million share stake was valued at $19.7 billion as of June 30, and the $29.95 current share price would generate a value of just over $20 billion.

Its consensus target price is currently over 10% higher than the price of $34.77. Bank of America’s stock has a 52-week range of $25.12 to $33.05, and the dividend yield is almost 2%.

Coca-Cola

Coca-Cola Co. (NYSE: KO) may be a boring stock that has been dead money, but having collected dividends for so long has made Buffett’s cost basis in the beverage giant drift down to almost zero. This 400 million share stake, valued at $17.5 billion at the end of June, is valued at almost $18.5 billion based on a current share price of $46.15.

Coca-Cola’s consensus analyst target is roughly 10% higher than at $50.98. Its 52-week trading range is $41.45 to $48.62, and the current dividend yield is 3.4%.

Wells Fargo

Wells Fargo & Co. (NYSE: WFC) used to be Buffett’s top stock holding, but he has lightly trimmed that stake in recent quarters to remain under a 10% ownership threshold. Wells Fargo has been a disappointment in the wake of its management fiascos and how it has handled its customers. This 452 million share stake was valued at $26.4 billion at the end of June, but the current share price of $52.70 would have it valued at about $23.8 billion today.

Wells Fargo’s consensus target price of $62.30 feels a bit optimistic after the recent sell-off, but that price is still well under its highs over the past year. Either way, Wall Street analysts on average think there is 18% upside in Walls Fargo, without even considering the 3.2% dividend yield. The 52-week trading range is $50.26 to $66.31.

Kraft Heinz

Berkshire Hathaway’s balance sheet under insurance and other operations also holds a massive investment in Kraft Heinz Co. (NASDAQ: KHC). This has been on the books for some time now and was valued at the end of June as roughly $20.5 billion. It’s been a rough 2018 for food investors, and that has not spared Kraft Heinz. The current share price of $56.00 is against a 52-week range of $54.11 to $82.48. The consensus target price now is $67.14.

If Wall Street analysts are correct in thinking the worst may be over, then there could still be 20% in implied upside ahead. Kraft Heinz’s dividend yield is now even up at almost 4.5% since the share price has dropped.

Chasing whales is far from an assured outcome. There is no free lunch when it comes to investing, even for those investors who just want to own mutual funds or exchange traded funds that track indexes and baskets of stocks. That said, Buffett has been heralded as the greatest investor of the modern era by more than just a few media reports. And even with the stock market at all-time highs, his largest equity holdings are currently believed to still offer upside for investors looking for new ideas.