Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar. Last week, Berkshire Hathaway released its third-quarter 13F, which detailed what it owned in its portfolio of publicly traded stocks at quarter’s end. Berkshire was a net seller of stocks during the third quarter. Berkshire unloaded its entire positions in names like General Motors GM, Johnson and Johnson JNJ, Procter & Gamble PG, and UPS UPS, among others. Berkshire also trimmed back its stakes in half a dozen names, including Chevron CVX and Amazon AMZN.
Most of the stocks that Berkshire Hathaway owns are about fairly valued according to Morningstar’s metrics. But today, we’re taking a look at two of the stocks in Berkshire’s publicly traded portfolio that we think are overpriced. We’re calling these names “Warren Buffett stocks to sell.”
2 Warren Buffett Stocks to Sell
The first stock in Berkshire Hathaway’s portfolio to sell according to our metrics is its largest holding: Apple AAPL. Now, we think there is plenty to like about Apple, as a company. For instance, we award the company a wide economic moat rating, thanks to the switching costs, intangible assets, and network effects associated with Apple’s iOS ecosystem. We also think management has done an exemplary job of allocating capital by maintaining a strong balance sheet, and we applaud CEO Tim Cook’s decision to initiate stock buyback and dividend programs. Apple continues to capture more paid subscribers and monetize the benefits of the iOS ecosystem by upselling more apps and services to its customers. However, we don’t foresee massive hardware growth out of existing products like the iPhone in the years ahead. At the end of the day, we think Apple stock is worth $150, and shares are trading well above that.
The second name on our list of “Warren Buffett stocks to sell” is Aon AON. Coincidentally—or perhaps not—Berkshire trimmed some of its position in Aon during the third quarter. Aon is a leading global provider of insurance and reinsurance brokerage and human resource solutions. Here, too, we think there’s a lot to like about the company—we simply think the stock is overpriced today. We view Aon as a fundamentally attractive business, with sticky customer relationships, limited capital requirements, and flexible cost structures. In fact, we assign the company a narrow economic moat rating. We also think management has done a fine job of shifting the company from an insurance-focused organization into a provider of a wider set of risk-management tools. We expect stable but modest growth in Aon over time, and we think shares are worth $219 each. The stock trades well above that today.
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Morningstar director Brian Colello and senior analyst Brett Horn contributed the research behind this segment.
Watch “2 Undervalued Stocks for Contrarians to Buy Before 2023 Ends” for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.