Is it time to turn away from biotech stocks? Famed investor Warren Buffett apparently thinks so.
Buffett’s holding company Berkshire Hathaway (NYSE:BRK.B) just released its second quarter 13F filing with the Securities Exchange Commission detailing its stock holdings at the end of June this year. As always, the disclosure was carefully analyzed by investors on both Main Street and Wall Street for indications of where the Oracle of Omaha sees markets heading and the companies he expects to grow in coming months.
The latest regulatory filing showed that Buffett increased his stakes in stocks such as Kroger (NYSE:KR) and Restoration Hardware (NYSE:RH) , but cut his holdings of stocks in several pharmaceutical companies. The cuts to holdings of drug makers generated a lot of headlines and discussion in the financial press as Buffett seemed to sour on the entire sector.
Here are three Buffett stocks to sell like Berkshire Hathaway did in the second quarter.
Biotech Stocks to Sell: Merck & Co. (MRK)
Among the pharmaceutical holdings that Buffett cut in the second quarter, his biggest reduction was in shares of Kenilworth, New Jersey-based Merck. Berkshire Hathaway reduced its stake in Merck by 49% between April 1 and June 30.
That leaves Berkshire Hathaway with 9.16 million shares of MRK stock that is currently worth $713.44 million. Merck & Co. is now among the smallest positions Buffett has of a pharmaceutical company.
The exact reason why Buffett felt compelled to cut his holding of MRK stock in half is not known. But it might have been caused by the stock’s lackluster performance. Year-to-date, Merck stock is up a measly 0.85%. While the drug maker has managed to meet analyst expectations in its quarterly earnings reports, it has not beaten them in some time, leaving the share price to languish.
Still, there is hope for Merck stock. The company recently won U.S. Food and Drug Administration approval for its pneumococcal vaccine that treats pneumonia, meningitis and sepsis.
Bristol-Meyers Squibb (BMY)
In the second quarter, Buffett reduced his stake in Bristol-Myers Squibb by 15%. Berkshire Hathaway sold 4.7 million shares, bringing his total holdings of BMY stock down to 26.3 million shares.
Buffett’s holding in Bristol-Myers Squibb is now worth $1.08 billion. As with Merck, Bristol-Myers Squibb subpar stock performance might explain why Buffett chose to offload some shares this past spring.
So far in 2021, BMY stock is up 12%. Not bad, and certainly much better than the performance of MRK stock. But Bristol-Myers Squibb’s share price has continued to lag the S&P 500 index, which is up 21% year-to-date, and trailed the performance of other pharmaceutical companies such as Moderna (NASDAQ:MRNA), which has seen its stock skyrocket 250% this year.
Bristol-Myers Squibb’s share price has a history of stalling right around $70 a share. It has reached the $70 level and then retreated in both 1999 and 2016. Currently, the stock is at $67 a share.
That said, Bristol-Myers Squibb is another pharmaceutical company that is having some success. Eliquis, which the company developed in partnership with Pfizer, has become the leading oral anticoagulant medication and is on track for more than $10 billion in annual sales. Also, cancer drug Opdivo racked up $7 billion in sales during 2020.
Biotech Stocks to Sell: AbbVie (ABBV)
Buffett trimmed his stake in Chicago-based drug maker AbbVie by 10% to $2.3 billion during this year’s second quarter. ABBV stock remains one of Berkshire Hathaway’s biggest pharmaceutical holdings. The company’s position in AbbVie stock is today worth $2.45 billion.
Still, the fact that the Oracle of Omaha sold some shares of the biopharmaceutical company brought some negative attention to AbbVie, which was previously known as Abbott Laboratories.
AbbVie pays a healthy dividend that yields 4.3%, equal to an annual payout of $5.20 per share. Buffett, who favors stocks with strong and reliable dividend payments, is no doubt attracted to ABBV stock for this reason.
However, like Merck and Bristol-Myers Squibb, AbbVie’s share price has trailed the markets and other pharmaceutical companies that are manufacturing vaccines against Covid-19. In the past six months, AbbVie’s share price has risen 10% and now trades at $120 per share. This could help explain Buffett’s waning interest in the stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
