5 Stocks Buffett Wouldn’t Touch No Matter What Price

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Sage of OmahaDo you think Warren Buffett was a Lone Ranger fan?

I bet he was, because he sure seems to like riding that white horse to the rescue. Berkshire Hathaway’s (NYSE:BRK.A) announced $5 billion investment in Bank of America puts him back in the role of hero. It is said he only recently thought of making the investment while sitting in his tub this week.

He probably secretly donned the mask, waved his loofah and yelled, “Hi ho Silver, away!”

For the second time since the financial collapse of 2008, Buffett is bringing his substantial war chest of capital to the financial services industry under the auspices of providing confidence and support to the economy and the United States of America.

Make no mistake: He is doing this deal to make big money. Buffett knows a bargain when he sees one, and given that he is one of few capable of making an investment of any meaningful size, he gets to dictate terms. In this go-around he gets a 6% coupon plus warrants to buy common shares of Bank of America at very depressed levels.

Given how he fared on his deal with Goldman Sachs, I’m sure he will do similarly well here. More importantly, the deal fuels his ego for being the investment god and savior that he is. My only question: Why doesn’t he do more of this bottom feeding?

Given the selling in the market, there certainly are plenty of candidates for him to come riding in to save the day. Stocks are lower across the board. Perhaps he is already actively buying below the radar screen and we have yet to hear about it.

One thing I do know is there are many beaten-down stocks he wouldn’t touch no matter the price. Buffett’s dossier is well known. There is no way he changes his stripes now. If you are holding one of these five beaten-down stocks waiting for Buffett or some other angel to come to the rescue, don’t hold your breath.

Hewlett-Packard

Like Bank of America, Hewlett-Packard (NYSE:HPQ) shares have sold off hard during the recent market correction. The technology company has seen its stock sink 32% since July 22. Fueling that decline were dramatic moves by management amid a gloomy forecast for the future.

One thing Buffett does not buy is technology. He claims to not understand these stocks like he does insurance, banks and other basic industrial concerns, and he readily admits to missing out on several opportunities to buy low over the years. Hewlett-Packard might or might not be attractive at these prices, but there is no Warren Buffett waiting in the wings to show support for this wounded technology company.

Research In Motion

Despite Buffett’s reticence to own technology companies, he does buy things that he uses or places where he shops. He loved See’s Candy, so he bought the company. He did the same thing with Dairy Queen. But because Buffett does not own a cell phone, it is unlikely he will come to the rescue of falling personal phone and data device maker Research In Motion (NASDAQ:RIMM).

RIM has seen its fortunes change dramatically. Apple has effectively destroyed the company. Since earlier this year, the company has seen its stock value plummet by 60%. At currently depressed levels, the only buying here is on speculation that someone will come to the rescue. It won’t be Buffett.

Sirius XM Radio

As an amateur musician, we know Buffett is a listener of music. Given the multiple music choices offered by satellite radio provider Sirius XM Radio (NASDAQ:SIRI), it is a safe bet that Buffett in some way, shape or form is familiar with this company. Perhaps his private jet comes with a subscription to satellite radio?

Shares of Sirius XM have fallen hard during this market correction. Shares are down 20% since July 22, probably not far enough to pique the interest of Buffett. We also know this company has a boatload of debt, and Buffett does not like debt. He might enjoy satellite radio, but there is no chance he buys this company that is barely cash-flow positive yet priced at a valuation of more than $6 billion.

Travelzoo

Buffett travels the globe, and even though he doesn’t fly commercial, he does stay in hotels and dine in restaurants. He also is a big believer in discounts not just for investing, but for consumption as well. One wonders if he has a subscription to travel and now broader discount member site Travelzoo (NASDAQ:TZOO). I doubt it, as the Oracle of Omaha might not even own a computer.

That is unfortunate for owners of Travelzoo shares. The stock has crashed to earth after reaching lofty levels earlier this year, losing 67% of their value to date. The problem for Travelzoo is competition and low barriers to entry. Those two things alone would make Buffett squirm when considering an investment in this heavily discounted stock. Shares might be attractive given current earnings expectations, but I don’t see Buffett having one iota of interest in this stock.

Pacific Sunwear

All this talk of a double-dip recession has had a devastating effect on the retail sector. Without the consumer spending, this group of stocks is perceived to be vulnerable to lower sales and profits. One name hit particularly hard is Pacific Sunwear (NASDAQ:PSUN). Its shares are down a whopping 80% over the past year. At a current market capitalization of $90 million, Buffett could buy this company with pocket change.

He won’t. Pacific Sunwear is a fad stock. It has none of the characteristics Buffett historically has identified as important traits a company must have before he makes an investment. Because fashion trends come and go, the reliability of this company to make a profit is in question. Pacific Sunwear has emerged from the ashes previously, but don’t expect an investor like Buffett to come riding to the rescue.


Article printed from InvestorPlace Media, https://investorplace.com/2011/08/stocks-to-avoid-warren-buffett/.

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