Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) stock didn’t suffer much after posting big 2022 losses just a few weeks ago. But those losses do have investors wondering if it continues to be overvalued, and if so, where? In total, Berkshire Hathaway posted a loss of $22.82 billion during the year. However, Warren Buffett remains enthusiastic about the U.S. economic engine, repeating the often heard line that he has “yet to see a time when it made sense to make a long-term bet against America.” Indeed, finding Buffett stocks to sell isn’t quite easy, for those with an optimistic outlook.
That said, Berkshire’s $22.82 billion net loss over the past year has many second-guessing his strategy. At the very least, that has many investors wondering which of their favorite stocks are the most overvalued. The global economy remains as tumultuous as it’s been for a long time. That has investors second-guessing the U.S. equities and others Buffett is so fond of.
Here are seven top Buffett stocks to sell, for those looking to play contrarian against one of the greatest investors of all time.
|LILA||Liberty Latin America||$8.02|
|FND||Floor & Decor Holdings||$88.75|
Nu Holdings (NU)
Nu Holdings (NYSE:NU) is a fintech stock that might not appear to be overvalued based on price alone. After all, it trades for $4.74 and carries an average target price of $6.92. So, if anything, it appears to be undervalued.
However, it has been a massive loser for Warren Buffett and his team at Berkshire Hathaway. They’ve picked up shares at an average price of $9.38 leading to a nearly 47% loss, at the time of writing.
The digital banking firm serves a Latin American customer base that has traditionally been underserved and underbanked. The logic for investing in Nu Holdings is reasonable – it’s a rapidly growing company serving a clientele that lacks services. If you get there first and do well, the upside is obvious.
But it remains difficult to argue in favor of NU stock as it produced a $9.1 million net loss in 2022 overall. Its revenue growth was impressive but the market looks unlikely to reward growth at this moment, and perhaps throughout the remainder of 2023, as the speed of Federal Reserve interest rate hikes could increase.
RH (NYSE:RH) is a holding company for Restoration Hardware, a home furnishings firm. It serves a higher-end, higher-priced portion of the market. Like Nu Holdings, has been a big loser for Berkshire Hathaway.
RH has been substantially affected by the 2022 market downturn. Revenues were relatively steady through the first nine months of 2022 compared to the same period in 2021. That could serve to bolster the notion that high-income consumers are more immune to economic conditions. However, revenues dropped from over $1 billion in Q3 ‘21 to $869 million a year later. Negative growth is rarely a positive.
The fact that this revenue drop was paired with a net income decrease nearing 50% only served to make things worse. And that’s exactly what happened, as net income plunged to $98.76 million in Q3 from $184 million a year earlier. RH stock remains overvalued based on a price-to-sales ratio that’s worse than 82.3% of industry peers.
Liberty Latin America (LILA)
Liberty Latin America (NASDAQ:LILA) provides telecommunications services throughout various Latin American geographies operating out of Denver. There are a lot of obvious reasons Warren Buffett is on board with Liberty Latin America based on metrics alone.
The company is value-creating, with a return on invested capital of 9.62%, outweighing its 6.14% average cost of capital. Other metrics including strong price-to-sales and price-to-book ratios suggest there’s a lot of hidden value within the firm’s shares. All of these figures point to the idea that the company is the kind that Buffett invests in.
That said, revenues were flat in 2022, and dropped 9% in Q4. The stock has been a consistent loser for Berkshire Hathaway which has seen its investment in LILA shares lose nearly 75%. It’s one of those somewhat confounding stocks that has bright spots yet never seems to find its footing. Accordingly, I think LILA stock is probably best left alone.
Floor & Decor Holdings (FND)
Floor & Decor Holdings (NYSE:FND) boasts impressive fundamentals with strong top-line and bottom-line growth figures. Further, on average, analysts believe it could have roughly $8 upside over its current $88 price. All seems to point to a positive outlook.
Sales increased 14.6% in the most recent quarter and 24.2% during fiscal year 2022. Net income rose by 5.3% at the same time. Again, all are suggestive of a positive outlook.
Yet, I can think of a few good reasons to steer clear of FND stock. A current Investors.com article refers to the equity as a play on a soft landing. Well, the Fed is likely to raise rates higher than previously suggested throughout 2023. The battle against inflation isn’t being won, and that is lessening the chances of any soft landing occurring.
Perhaps as importantly, its stock carries a high price-earnings ratio. This should warn investors that buyers have been overpaying for the company’s earnings.
Ally Financial (ALLY)
Ally Financial (NYSE:ALLY) is a digital banking stock that isn’t overvalued based on its $34.58 target stock price. Currently, this stock trades right around the $24 level, at the time of writing. But it has some interesting factors relative to its business that make it risky. And for that reason it is worth avoiding.
So just what are those factors?
Primarily, I’d be very worried about the degree to which Ally Financial relies on automotive financing for revenues. In 2022, this segment contributed $2.25 billion of its $2.342 billion in pretax income. Why does that matter? Well, auto payment defaults are on the rise, exposing underlying issues with consumer credit. So, it makes little sense to be invested in a firm so heavily reliant on a healthy consumer auto credit market that is faltering.
The company already noted higher provisions for losses on those loans in its earnings report, so it is bracing for the impact. In any case, the company’s auto credit exposure provides enough of a reason for investors to steer clear of ALLY stock.
Paramount Global (PARA)
Paramount Global (NASDAQ:PARA) is likely to move downward soon. The media stock is currently fully-priced, and carries a bearish consensus that leans toward a sell rating. Further, earnings per share of $0.08 were well below the $0.23 Wall Street was anticipating. That generally doesn’t benefit any stock.
That miss was attributable to lower advertising revenues. These disappointing numbers prompted management to announce price increases for 2023, that probably won’t entice investors. It’s the same story that’s plaguing advertising-dependent firms everywhere – a weaker economy is causing slower demand for both consumers and companies looking at their advertising spend moving forward.
That said, the company did report full year revenue growth of 38% in 2022. Paramount showed that it can operate in a downturn. That said, I don’t think this will matter, as long as overarching recession fears continue to mount. As mentioned many times before in this article, I think these fears are poised to mount, as the Fed continues to fumble the ball on inflation.
General Motors (GM)
I’d assert that General Motors (NYSE:GM) stock is overpriced even at its current $34 per share level, which is well below analysts’ consensus views. The reason is simple: it has benefitted from the halo effect of the EV push, but its production is stalling.
This year is supposed to be a breakout one for GM in relation to its EV peers. Unfortunately, thus far, such a breakout year is failing to materialize as its GMC Hummer and Cadillac Lyric rollout have been slower than expected.
GM stock is underpriced based on various valuation ratios. Whether it’s price-earnings, price-sales, or price-book value, this is a cheap stock. That said, I think investors need to consider not where the stock price is today, but where it will be in the future based on its growth. On that front, things don’t look so hot.
GM’s EVs are entirely new vehicles that rely on unproven technology. There are bound to be problems. The Hummer EV has already experienced such issues with improperly sealed battery packs that also affected its EV vans late in 2022. Future reliability issues are common to new platforms, and I think these are bound to make EV detractors correct in their criticisms, at least for now.
On the date of publication, Alex Sirois 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.
Consumer Discretionary, Automotive, Communications, Industrial, Construction, Financial, Fintech, Media