>>> Eight Stocks Give Warren Buffett A Headache (They're Not Airlines)
Investor's Business Daily
Warren Buffett finally bailed out on S&P 500 airline stocks. But his portfolio is still full of stocks giving him giant headaches.
Berkshire Hathaway (BRKB) this year lost $1 billion or more, and at least 20%, on eight of its 47 U.S.-listed public holdings like financials Bank of America (BAC) and Wells Fargo (WFC) plus consumer staples stock Coca-Cola (KO). This is according to an Investor's Business Daily review of Buffett's latest holdings data from S&P Global Market Intelligence and MarketSmith. Only stocks primarily listed on U.S. exchanges were included.
Big losses in the famed Buffett portfolio persist even after he unloaded massive airline losers. And it's showing the dangers of chasing after value-priced stocks — the ones Buffett tends to prefer — in this coronavirus market. Learn how to find breakaway growth-stock winners instead on Leaderboard.
Shares of Berkshire Hathaway are down 22% just this year alone, dragged down by a host of lagging stocks. The S&P 500 is only down 13% and the growth-focused Nasdaq 100 is up 2.6%. Buffett alone lost $21.8 billion this year on his 16% stake in the company. No other top individual owner has lost anywhere near that much on an S&P 500 stock this year.
No wonder Berkshire just posted the largest-ever loss by an S&P 500 company.
Warren Buffett Snared By S&P 500 'Value Trap'
Much of Buffett's pain centers around his tilt toward S&P 500 value stocks. It's ironic as "cheap" stocks are supposed to offer safety in downturns with dividends and stability. But that's not happening in the coronavirus stock market.
The Vanguard Value ETF (VTV) is down a crushing 22% this year, nearly identical with Berkshire Hathaway's drop. But growth stocks are faring much better as they are showing more resilience in the coronavirus-inflicted world. The Vanguard Growth ETF (VTV) is down just 1.2% this year.
What's hurting the value stocks group? Exactly the kinds of stocks investors want nothing to do with in a pandemic.
S&P 500 Financials: Still A Pain Point
A trio of financials are now handing Berkshire Hathaway its biggest losses.
Berkshire Hathaway is down $13.6 billion just on one stock this year: Bank Of America. The bank's brutal 41% drop this year hurts as Berkshire Hathaway owns nearly 11% of the company. Wells Fargo is down even more: 58%. That's wiped nearly $11 billion from Berkshire's portfolio. And then there's American Express (AXP), off 37%, costing the portfolio nearly $7 billion.
Now that Buffett sold his airline stocks, the financials are Buffett's biggest problem. Six of Berkshire's worst eight losses are all financials. Savvy investors can actually make money betting against banks Buffett owns, like Wells Fargo.
Berkshire Hathaway holds 17 publicly traded financials. That's more than any other sector in the portfolio, says S&P Global Market Intelligence. And Berkshire Hathaway's public holdings in financial stocks account for a third of his portfolio. In contrast, the financials sector accounts for just 13% of the S&P 500 and just 19.5% of S&P 500 value indexes.
Being heavy on S&P 500 financials is a big drag for Buffett and other value investors. The Financial Select Sector SPDR ETF (XLF) is down 33% this year. That's the second-worst loss of the 11 sectors after only the energy sector's 40% wipeout. And that's saying something.
Not Even Coke Is Giving Buffett A Smile
Consumer staples are supposed to shine in recessions. Packaged foods gain popularity when money's tight. One 69-year-old actually scored more than $100 million on Campbell Soup stock this year. The Consumer Staples Select Sector SPDR ETF (XLP) is down this year 9.4%, holding up better than the S&P 500.
But no such luck with Buffett's favorite consumer staples stock: Coca-Cola. The beverage maker is down twice that of the sector, 21%, this year. Buffett owns 9% of the company so the drop bubbles into a $4.6 billion loss this year.
And unlike other consumer staples companies seeing bumps in their business, Coke's earnings are predicted to fall 11% this year, says S&P Global Market Intelligence. No wonder it sports a low 66 IBD Composite Rating. Compare that with the 99 Composite Rating of rival beverage maker, Monster Beverage (MNST), which is a growth stock. Monster shares are up 2.5% this year.
Certainly, value stocks might return to favor — one day. Large value stocks returned an average 10.37% annually since 1928, says Index Fund Advisors. That edges slightly past the 9.77% annualized gain of the S&P 500.
But do you and Buffett want to bet on them returning anytime soon?
Warren Buffett's Costliest Mistakes This Year
Most big losses are from S&P 500 financials
Company Ticker % Of Company Owned By Berkshire Sector YTD Stock % Ch. Berkshire's YTD Loss ($ Billion) Composite Rating
Bank of America (BAC) 10.9% Financials -40.7% $13.6 42
Wells Fargo (WFC) 8.4% Financials -58.1% $10.8 6
American Express (AXP) 18.8% Financials -37.3% $7.0 62
Coca-Cola (KO) 9.3% Consumer Staples -20.6% $4.6 66
U.S. Bancorp (USB) 10.0% Financials -50.3% $4.5 21
JPMorgan Chase (JPM) 2.0% Financials -39.7% $3.3 44
Bank of New York Mellon (BK) 10.0% Financials -35.4% $1.6 61
General Motors (GM) 5.2% Consumer Discretionary -41.4% $1.11 56