Wall Street and investors wisely pay close attention when Berkshire Hathaway (BRK.A -0.20%) (BRK.B -0.18%) CEO Warren Buffett speaks. That’s because Oracle of Omaha has a total return of 3,641,613% for its Class A (BRK.A) stock during its 57 years at the helm (ending Dec. 31, 2021).
Going with the flow has been a money-making strategy for decades, but it’s also important to pay attention to the stocks that the world’s most successful investors and their investment teams are selling or avoiding. Here are five stocks that Warren Buffett has overseen a massive sell-off through 2022.
Wells Fargo: Sell all stocks
This year marks the end of the era of Warren Buffett and Berkshire Hathaway. During the first quarter, Berkshire’s last 675,054 shares were sold to financial bank Wells Fargo (WFC 2.21%). This is the first time since 1989 that Wells Fargo has discontinued its Berkshire portfolio.
While bank stocks are Buffett’s favorite investment industry, Wells Fargo is breaking a basic rule when it betrays its customers’ trust. In 2016 and 2017, Wells Fargo admitted to opening approximately 3.5 million unauthorized branch-level accounts between 2009 and 2016. The admission sparked a short-term rotation among company executives that culminated in a massive $3 billion settlement with the United States. controller. Because it is difficult for a company to rebuild its reputation, Buffett moved toward an exit.
Bristol-Myers Squibb: All shares sold
The second well-known company to come under pressure since the start of the year is pharmaceutical stock Bristol-Myers Squibb (BMY 1.58%). All of Berkshire Hathaway’s 5,202,674 shares held at the end of 2021 were sold in the first quarter.
More than a year ago, Berkshire Hathaway squeezed into a string of high-profile drugmakers, presumably to capitalize on its COVID-19 research and take advantage of its high dividend and relatively stable operating cash flow. However, Bristol-Myers Squibb has never been a major player in the COVID-19 treatment space. To make matters worse, blockbuster cancer drug Revlimid has started to experience a modest sales decline from generic competition. The latter two factors are my best guess as to why Bristol Myers Squibb was successful.
But when viewed with a wide-angle lens, Bristol-Myers Squibb is a cheap cash cow that seems to have room for improvement. Annual sales of Eliquis, an oral anticoagulant developed in partnership with Pfizer, have surpassed Revlimid. Cancer immunotherapy Opdivo is on track to surpass $10 billion in annual sales thanks to label expansion opportunities.
AbbVie: All shares sold
Bristol-Myers Squibb isn’t the only major drugmaker left behind by Warren Buffett this year. AbbVie (ABBV -0.62%), originally purchased by Berkshire Hathaway in 2020, has all been sold. Buffett and his investment team gave up all 3,033,561 shares they held at the end of 2021.
The basis for selling all AbbVie shares may reflect the reason for leaving Bristol Myers Squibb. While AbbVie has provided investors with stability during uncertain times, the company has never been a significant player in the COVID-19 space. In addition, its flagship anti-inflammatory drug Humira has also begun to face competition from biosimilars in the international market. While Humira’s U.S. sales rose 2.2% in the most recent quarter, international sales fell 22.6% from a year earlier.
While AbbVie is still cheap at 12 times Wall Street’s forecast for 2023, Buffett’s exit could make sense in this case. Humira accounted for 35% of global net sales in the first quarter, and competition from biosimilars will eventually impact U.S. sales as well. Although AbbVie acquired Allergan in 2020 to diversify its sales and product development pipeline, it’s hard to imagine that AbbVie’s bottom line will suffer in the coming years due to declining Humira sales. will be severely hit.
Royalty Pharma: 82% reduction
Keeping on topic, Berkshire Hathaway’s stake in Royalty Pharma (RPRX 2.69%) has shrunk significantly so far this year. A total of 7,151,896 shares were sold, leaving Buffett with less than 1.5 million shares left in his portfolio.
The royalty-based pharmaceutical company, which generates royalties on net sales of more than 35 approved drugs, was added to Berkshire’s portfolio only in the third quarter of 2021. After six to nine months, that holding was down 82%, suggesting this could be a move by one of Buffett’s investment lieutenants, Todd Combs or Ted Weschler. Warren Buffett rarely holds a position within a few months.
In my opinion, the reason Berkshire Hathaway divested its 82% position in Royal Pharma has to do with the impending exclusivity losses that are expected to impact the company’s royalties. Humira, for example, is one of more than 35 treatments that generate revenue for Royal Pharma. With a slew of Humira biosimilars set to launch in the U.S. next year, we could see the company’s royalties peak in the near term.
Verizon Communications: 99% reduction
Arguably the most surprising is the fifth and final stock Warren Buffett is selling in a big way in 2022, telecom giant Verizon Communications (VZ 0.39%). Oracle of Omaha sold 157,444,464 Verizon shares in the first quarter. At the end of March, only 1,380,111 shares remained.
The strange thing about the sale is that Verizon has only been in Berkshire’s top 10 holdings for about a year. To reiterate, Warren Buffett typically buys great companies that he wants to hold for the long term. Seeing Berkshire Hathaway in and out of stock in a short period of time is… odd.
If there is any push to this big sell-off, it could be historically high inflation. When the prices of goods and services rise rapidly, it tends to hurt the bottom decile the most. While wireless access and smartphones have become basic necessities over the past decade, inflation is eroding consumers’ purchasing power. Not surprisingly, Verizon warned Wall Street that full-year earnings would be at the low end of the guidance it previously issued in its first-quarter earnings release.
The silver lining for Verizon is that there are few surprises. Wireless churn typically doesn’t spike during a recession, and Verizon’s stock trades at just 9 times Wall Street’s projected earnings in 2022-23, so it’s reasonably de-risked. If you assume a 5% dividend yield, you have a dull but potentially profitable stock, which is where conservative investors make money.
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