Five stocks Warren Buffett sells but must buy
When Warren Buffett speaks, the rest of the investors listen intently. But those five closed positions for Berkshire Hathaway should be reconsidered, according to Sean Williams on The Motley Fool.
Last week, Buffett filed Form 13F with the Securities and Exchange Commission.. This allows us to have first hand the latest changes to your portfolio. Specifically, he added five companies and reduced or closed 13 positions.
While Buffett’s background speaks for itself, it’s not perfect. Of the 13 stocks that have been downgraded or completely retired, five stand out as intriguing stocks that investors should buy and not sell, âWilliams says.
Buffett is not a big fan of these types of businesses. since you don’t have time to keep up to date with clinical trial results and patent deadlines. These decisions are due to his lieutenants, Todd Combs and Ted Weschler.
In the first trimester, Herkshire Hathaway sold 10.8 million shares. These stocks are valued 11 times future year’s earnings, according to Wall Street’s consensus estimate of earnings per share.
Merck’s superstar is still Keytruda cancer immunotherapy, to which the US Food and Drug Administration has given the green light for two dozen indications. Last year, during the worst economic recession in decades, it generated 30% growth and $ 14.4 billion in revenue. With Keytruda benefiting from label expansion opportunities, better cancer screening diagnostics, longer shelf life and strong pricing power, it could become the best-selling drug in the world. world in a few years.
Merck stock chart
Don’t forget the Animal Health division, too, which increased sales by an impressive 17% in the first quarter. Livestock may be the biggest generator of income for animal health today, but the fastest growth comes from pet therapies.
In the first trimester, Buffett’s company uploaded around 6.3 million shares, or 12% of its previous holdings.
While the satellite radio space isn’t the high-growth trend it once was, Sirius XM does offer a few strategic advantages that make it a high-quality stock. For example, you are in a much better position to weather the inevitable recessions and economic downturns than their peers. While most terrestrial and online radio operators rely almost exclusively on advertising for their income, ad sales sell out quickly during recessions.
The satellite company generated 78% of its first quarter revenue from subscriptions. History has shown that subscribed customers are unlikely to cancel during temporary economic disruptions.
Sirius XM Stock Chart
More too You benefit from a series of relatively fixed or slightly variable costs. For example, regardless of how many new network subscribers sign up, the company will continue to pay the same streaming rates and have more or less the same equipment costs. Although talent acquisition costs and royalties may vary, this operating model is designed for long-term margin expansion.
Another pharmaceutical company in which the fund reduced its stake in the company by 10% (around 2.7 million shares) from the fourth sequential quarter.
He currently has the world’s best-selling drug, Humira, in his portfolio. This well-known anti-inflammatory generated $ 19.8 billion in sales in 2020 and accounted for around 43% of total revenue. From 2023, Humira biosimilars will start hitting drugstore shelves in the United States, which could impact sales. However, it is such a well-known drug with multiple indications on the label that it can remain a source of income for many years to come.
The pharmaceutical company has also managed to diversify its product portfolio through acquisitions. Last year it bought Allergan, which introduced new therapies, improved its global distribution and is expected to generate more than $ 2 billion in cost synergies per year.
Abbvie Stock Chart
The point is, it generated over $ 18 billion in operating cash flow in the past year and is achievable for a reasonable profit nine times that of the year ahead.
Berkshire 13F shows 5.5 million shares sold, which reduced the remaining stake in GM to 67 million shares.
The main buzz around GM, and the reason it remains a title to own in the auto industry, is the company’s push towards electric vehicles (EVs) and autonomous driving technology. He previously made plans to spend $ 20 billion through 2025 on alternative energy technologies.
But in November 2020, he increased his commitment to $ 27 billion through the middle of the decade.. In total, it plans to launch 30 electric vehicles around the world. It’s a company with over a century of history behind its brand, which means it should have no problem entertaining a global audience for its electric vehicles.
General Motors stock chart
Equally encouraging is the momentum it has seen in China, the world’s largest auto market. Despite a loss of share in the US market, the share of the Asia / Pacific, Middle East and Africa segment increased by 70 basis points in the first quarter to 7.5%. Cadillac sales more than doubled in the region to 60,000 vehicles, while Buick vehicle sales increased 73% to 225,000. By 2035, about half of all New vehicle sales in China could be electric, which represents a huge opportunity for GM.
During the first trimester, Berkshire Hathaway gave up 2.3 million shares, reducing its total stake in the company from 6% to around 31 million shares.
Bristol-Myers Squibb stock chart
What you really need to appreciate is that it grows organically and inorganically. Speaking of the former, you have the world leader in oral anticoagulants (Eliquis) in your portfolio and you are likely to see further increase in cancer immunotherapy sales growth Opdivo. Although sales have stagnated at $ 7 billion in 2020, it is being tested in dozens of monotherapy and combination therapy clinical trials. If only a small portion of them are successful, this will continue to offer significant sales growth potential.
He also did a great job complementing his results with acquisitions. The purchase of Celgene in November 2019 is expected to generate significant cash flow through the middle of the decade. Indeed, this acquisition introduced the popular multiple myeloma drug Revlimid to the portfolio which has grown sales by double digits each year for more than a decade. Its label has been enlarged several times and benefited from a longer duration of use.
Such a profitable business is valued at a multiple of just eight times Wall Street’s projected earnings for the coming year.