Susan Dziubinski: Just last week, Berkshire Hathaway BRK.A BRK.B released its 13-F filing for the first quarter of 2023. Berkshire sold more stock than it bought during the period. Warren Buffett and his team eliminated their entire positions in RH RH, Bank of New York Mellon BK, US Bancorp USB, and Taiwan Semiconductor TSM. It sold off a sizable slug of its position in Chevron CVX, too.
What did Warren Buffett and his team buy last quarter? Berkshire took a new position in Capital One Financial COF. The team also added to their existing stakes in Apple AAPL, Bank of America BAC, and Occidental Petroleum OXY, among others.
Are these four Warren Buffett stock buys attractive today based on Morningstar’s valuation metrics? Let’s have a look.
Warren Buffett Bought These 4 Stocks. Should You?
Capital One Financial is a diversified financial-services holding company. The firm’s branch network is more limited than those of its more traditional banking peers; it instead uses online and mobile channels to acquire customers and service its accounts. This online focus has allowed Capital One to establish a national presence and to enjoy the benefits of being a large bank but without the expense of operating the branch system of a large bank. We think Capital One has carved out a narrow economic moat. The firm’s largest driver is its credit cards, which make up around 44% of its loans. The bank’s remaining business mostly consists of commercial loans and auto loans through its consumer banking segment. Although Capital One’s first-quarter earnings were weaker than anticipated, we maintained our $140 fair value estimate. Capital One stock looks undervalued to us today.
Now on to Apple stock, which the team at Berkshire bought more of during the first quarter. At around 46%, Apple is by far the largest holding in Berkshire’s portfolio of stocks. Morningstar assigns Apple a wide economic moat rating and thinks Apple’s management has done a superior job of allocating capital. Apple is certainly a tech titan. And in fact, Apple surprised us with its solid first-quarter results. However, Morningstar reaffirmed its $150 fair value estimate on the stock after earnings, as we remain cautious about the next several quarters as macroeconomic headwinds persist. Apple stock looks overvalued to us.
Bank of America is a longtime Buffett favorite and the second-largest holding in Berkshire Hathaway’s stock portfolio. Although the team at Berkshire has been scaling back their exposure to U.S. banks, Buffett reconfirmed his commitment to the bank during Berkshire Hathaway’s meeting earlier this month, and Berkshire owns about 13% of the company’s shares. Bank of America has one of the best retail branch networks and overall retail franchises in the U.S., is a leading investment bank and a top-four U.S. credit card issuer, and owns the Merrill Lynch franchise. The bank announced decent first-quarter earnings, with its deposit base and funding costs coming in as expected. We think Bank of America stock is cheap and worth $37 per share.
And lastly, there’s Occidental Petroleum, shares of which Warren Buffett and company have been accumulating during the past year. Buffett noted at the annual meeting that Berkshire has no plans to purchase Occidental outright, even though he and his team continue to up their position in the stock and now control about 24% of the company’s stock. Morningstar recently raised its fair value estimate on the independent exploration and production company to $56 after the firm posted strong operational results in the first quarter. We think shares are about fairly priced and certainly no bargain.
Original Article: https://www.morningstar.com/articles/1159481/warren-buffett-bought-these-4-stocks-should-you
