4 Stocks Warren Buffett Didn‘t Sell in Q4: Morningstar

Warren Buffett hasn’t lost his investing mojo. Ahead of market drops in early 2022, Berkshire Hathaway was a net seller of equities in the fourth quarter of 2021, according to a filing with the Securities and Exchange Commission in mid-February.

Gregg Warren, Morningstar’s Berkshire stock specialist, found that the company offloaded positions in Sirius XM Holdings and Teva Pharmaceuticals and scaled back its positions in certain stocks such as Marsh & McLennan, Bristol Myers Squibb and AbbVie.

New positions included Nu Holdings and Activision Blizzard, which is being acquired by Microsoft, Warren noted.

But perhaps what’s key is what the Oracle of Omaha held on to. In reviewing the fourth-quarter 13-F filing, Morningstar did a deep dive into those stocks and what they believe is still undervalued. We’ve added the stocks’ year-to-date performance.

1. Kraft Heinz (KHC)

As of Feb. 16, Morningstar rated this stock four stars. One key reason, according to Morningstar’s Erin Lash, director of consumer sector equity research: “prioritizing investments for the long-term health of the business (in contrast to its mandate under the past regime to elevate margins at all costs).”

Lash also noted that despite supply chain issues, the stock price still improved and “we still think this no-moat name is a bargain, trading at a nearly 30% discount to our intrinsic valuation, while offering a 4% dividend yield.”

Year to date through Wednesday, the stock has risen 11%, versus the S&P 500, which is down just over 10% in the same time period.

2. Verizon Communications (VZ)

Although Morningstar believes wireless industry customer growth will slow in 2022, it does see Verizon as “modestly undervalued” after several strong quarters, according to Mike Hodel, director of communications services equity research.

The firm expects to post “at least 3% wireless service revenue growth in 2022 (9%-10% with Tracfone),” Hodel said, noting that Verizon’s confidence in growth “stems from growth in average revenue per account, which increased 2.6% year over year during the fourth quarter, driving wireless service revenue up 3.5%.”

Also a problem was the company’s dispute with the Federal Aviation Administration in putting 5G (C-band) networks around airports, but Hodel noted that “we expect the aviation industry will gradually gain comfort with C-bank use given the wide separation between these frequencies and those used for navigation.”

Year to date, Verizon’s stock price is up close to 2%.

3. General Motors (GM)

Chip shortages and commodity costs still mean uncertainty for the automaker, but Morningstar strategist David Whiston said that a combination of “solid numbers, should GM achieve them” and adjusted diluted earnings per share at $6.25-$7.25 as well as management’s confidence that the chip shortage problems “will be resolved by the third quarter” contributes to this stock’s four-star rating.

One hurdle is management’s expectation of 25% to 30% global wholesale unit growth, Whiston noted, as “we’ve heard suppliers recently continue to express pessimism about current industry forecasts.”

Added costs due to supply chain issues could also be a hurdle.

And though the dividend will not be resumed at this point, according to GM CEO Mary Barra, Whiston said that Morningstar believes the company “may do special dividends as a way to attract more growth investors.”

Year to date, GM’s stock price is down more than 24%.

4. Amazon (AMZN)

On Feb. 18, the company raised its prices in the United States on Prime to $139 from $119, which Morningstar senior analyst Dan Romanoff said underscored Amazon’s “pricing power and highlighting Prime as a revenue driver.” Further, the company plans to “invest heavily” in its Web Services (AWS), fulfillment capacity and delivery. Romanoff says constraints on these will start to “ease in the second half of 2022.”

They also see the company “well positioned” as the future continues to shift toward e-commerce and the public cloud.

With the “pandemic-fueled growth” slowing, as well as new hurdles with labor issues and higher shipping costs, the company has still performed well.

Growth was most impressive in its AWS unit, at to 40% for the quarter. “We continue to view advertising and AWS as key long-term drivers for shares,” Romanoff stated.

Year to date, Amazon shares are down 15%.