Warren Buffett doesn't concern himself about short-term stock moves. He focuses on the long term. The legendary investor once stated, "If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes."
I suspect Buffett still likes to see the stocks he owns perform well over the short term, too. And analysts predict great things for at least a couple of his largest holdings. Roughly $45 billion of Buffett's Berkshire Hathaway (BRK.A 0.66%) (BRK.B 0.80%) portfolio is invested in two stocks that could soar more than 20% over the next 12 months, according to Wall Street.
Bank of America: 21% upside potential
Bank of America (BAC 2.90%) ranks as Berkshire's second-largest position, making up more than 8% of its total portfolio. Berkshire's stake in the big bank is currently worth close to $27.4 billion.
It's been a tough year so far for Bank of America shareholders with the stock falling around 20%. The failure of several U.S. banks earlier this year led to widespread concerns that weighed on the entire banking industry.
However, Wall Street remains quite bullish about Bank of America. The average analysts' 12-month price target reflects an upside potential of 21%. Of the 30 analysts surveyed by Refinitiv in November who cover the stock, 22 rate it as a buy or strong buy. Most of the other analysts recommend holding BofA, although there is one outlier who recommends selling the stock.
Bank of America's business continues to perform well. The company's earnings jumped 10% year over year in the third quarter to $7.8 billion. BofA's management is doing a great job at managing expenses. The bank's balance sheet remains solid. Unsurprisingly, CEO Brian Moynihan said in the Q3 earnings call, "[W]e feel good about the path ahead."
Chevron: 23% upside potential
Buffett sold shares of Chevron (CVX -0.77%) in the second quarter. However, the oil and gas producer still ranks as Berkshire's fifth-largest holding with its stake worth nearly $18 billion.
Like Bank of America, Chevron has seen its share price sink close to 20% in 2023. The key difference for Chevron, though, is that most of its decline has come in recent days. Investors reacted negatively to the company's announced acquisition of Hess for $53 billion and its weaker-than-expected Q3 results.
But Wall Street hasn't bailed on the energy giant. The average 12-month price target for the stock is 23% higher than Chevron's current share price. Of the 24 analysts surveyed by Refinitiv in November who cover the stock, 16 rate it as a buy or strong buy. Seven analysts recommend holding Chevron, with one giving the stock an "underperform" rating.
Interestingly, Bank of America upgraded Chevron from neutral to buy after the recent sell-off. Analyst Doug Leggate wrote to investors that the stock's decline "makes little sense" and that the lower share price "leaves CVX back at levels we believe warrants another look."
Is Wall Street right about these Buffett stocks?
I think that Wall Street's optimism about these two Buffett stocks is merited. Both Bank of America and Chevron have solid underlying businesses. I like BofA's focus on technological innovation. I also believe that Chevron's acquisition of Hess is a good move for the company.
The price is right with both stocks, in my view. Bank of America's shares trade at less than eight times expected earnings and a price-to-book ratio of only 0.81. Chevron's forward earnings multiple is a little over 10x.
Last, but not least, the dividends for both companies are attractive. Bank of America's dividend yield stands at nearly 3.7%, while Chevron's yield is almost 4.2%. These top Buffett holdings will pay investors nicely as they wait for rebounds that I suspect will be on the way sooner or later.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Chevron. The Motley Fool has a disclosure policy.
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November 05, 2023 at 05:50PM
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$45 Billion of Warren Buffett's Portfolio Is Invested in 2 Stocks That Could Soar More Than 20% Over the Next 12 Months, According to Wall Street - The Motley Fool
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