Having the status of Warren Buffett’s favorite stock pick is a title to reckon with. Knowing what this legendary investor likes or dislikes is something that raises a serious debate in the value investing community. Wells Fargo & Company (NYSE:WFC), which is also Warren Buffett’s favorite bank, has released the list of potential buys for Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) in its equity research. We don’t agree with it, nonetheless it will be interesting to analyze it. The report enlists a number of stocks based on ROE, debt-to-equity ratio, profit margins and P/E values and raises the question of what Buffet might buy now. We will discuss some of them:
Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has previously owned 7.7 million shares in INTC and later sold the entire stake in Q2 2012. Intel now trades at around $21. The stock price has declined consistently from the mark of $27-28. Intel has potential in one way, Intel Corporation (NASDAQ:INTC) is now touching the same price range that it was at around the time when Buffet first bought the stock in Q3 2011. But that would be enough, if Intel has some bright prospects ahead, its footing and plans for smartphone and tablet markets are still unclear. The latest earnings have been, predictably, lackluster. PC demand, which is Intel’s biggest play, is sliding every day. So there are no stimulants so far and BRK may like Intel, but it is not the high time to buy this one.
Abacab Fund Sees Mispricing In Options As Black-Scholes Has Become “Inadequate”
Abacab Asset Management's flagship investment fund, the Abacab Fund, had a "very strong" 2020, returning 25.9% net, that's according to a copy of the firm's year-end letter to investors, which ValueWalk has been able to review. Commenting on the investment environment last year, the fund manager noted that, due to the accelerated adoption of many Read More
At that time he was contemplating selling some shares of this pharmaceutical giant, and he did indeed sell them in the June quarter. The stake was reduced by 65 percent. The current price of Johnson and Johnson seems too high for Buffett’s liking, JNJ trades around $70. When Buffett sold this holding, it traded at $67.
Google Inc (NASDAQ:GOOG)
Google Inc (NASDAQ:GOOG) has been touching highs and breaking price records over the past weeks. In the past, Buffett has not liked how prone these tech majors are to public sentiment. The case for Apple Inc. (NASDAQ:AAPL) was discussed in detail in one of our previous posts. During the last few weeks, while Apple stock spiraled down (below $650) because of the Maps fiasco, Google gained new highs (above $750). The dynamic between Apple Inc. (NASDAQ:AAPL) and Google is so fragile, that one mistake can swing it out of the zone. In 2009, Charlie Munger, VP of Berkshire had words of praise for Google:
“Google has a huge new moat,” Munger said. “In fact I’ve probably never seen such a wide moat.”
Could this be the time to buy Google Inc (NASDAQ:GOOG) when it is at its strongest? The P/E ratio is expensive, but the holding of IBM broke from nowhere, so who knows?
Microsoft Corporation (NASDAQ:MSFT)
There are chances of significant growth for Microsoft Corporation (NASDAQ:MSFT) with its upcoming Windows 8 release. As long as Buffett plays a central role in Berkshire, MSFT is unlikely to join the ranks. It is not because of MSFT’s earning power, it’s only that Buffett is friends with Bill Gates. He has praised Microsoft Corporation (NASDAQ:MSFT) on previous occasions, but also expressed his inability to own the stock.