Many stocks owned by Berkshire Hathaway as of Dec. 31 were overvalued, according to Morningstar analysts.
You usually can’t go wrong buying stocks owned by Warren Buffett, chief executive of Berkshire Hathaway.
Many of the stocks owned by the Oracle of Omaha as of Dec. 31 were overvalued, according to Morningstar’s fair value estimates.
But here are three that Morningstar analysts view as substantially undervalued.
Morningstar analyst David Whiston assigns the company no moat (competitive advantage) and puts fair value for the stock at $78. It recently traded at $43.15.
“We see General Motors with a competitive lineup in all segments it competes in, combined with a reduced cost base, finally enabling it to have the scale to match its size,” he said in a commentary.
“GM’s earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial.”
Further, “moving hourly workers’ retiree healthcare to a separate fund and closing plants drastically lowered GM North America’s breakeven point, to U.S. industry sales of about 10 million-11 million vehicles, assuming 18%-19% share.” Whiston said.
“We expect more scale to come from GM moving its production onto vehicle sets over the next few years.”
Morningstar analyst Eric Compton gives the company no moat and puts fair value for the stock at $75. It recently traded at $51.40.
“Citigroup is in the middle of a major turnaround and remains a complex story,” he wrote in a commentary.
“The bank is working through consent orders from regulators, selling off its international consumer operations, and refocusing on its wealth unit.
“This should make the bank easier to understand and structurally more focused,” Compton said. “However, Citi will still trail its peers from a profitability standpoint.”
Looking at Citi’s parts, “the wealth space remains as competitive as ever, as does the card space, and we don’t see the bank building up a retail presence to rival its peers,” he said.
But, “we still see room for an improved valuation,” Compton said. “The bank will need to prove it can bring core costs down after 2023.”
Morningstar analyst Erin Lash assigns the company no moat. She puts fair value for the stock at $52. It recently traded at $40.
“We think recent [strong] performance, which came in the face of pronounced inflationary pressure and supply chain disruptions, is a byproduct of the firm’s astute focus since Chief Executive Miguel Patricio took the helm in mid-2019,” Lash wrote in a commentary.
He came aboard to “recenter the business on surgically extracting costs and prioritizing investment in its brands through consumer-valued innovation and marketing,” she said.
“Management has been resolute that cost savings will fund reinvestment.”
Patricio was also charged with expanding the company’s capabilities through category management and e-commerce, Lash said. “The prudence in this path is evident as sales sit 6% above the fourth-quarter 2019 level.”