1 Warren Buffett Stock to Avoid

We wouldn't buy these four Warren Buffett stocks.

Jun 26, 2014 at 6:00AM


Charlie Munger, the Vice Chairman of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) and longtime investing partner of Warren Buffett, is known for frequently quoting the 19th century mathematician, Carl Gustav Jacob Jacobi:

"Invert, always invert."

Munger argues that solving a problem often requires one to look at it from a counter perspective. If you're aiming to sell a product, it can be helpful to ask, "How would I get people to not buy my product."

With this "inversion" in mind, we asked five Fools to look at Berkshire Hathway's portfolio of stocks and tell us which company they would avoid buying -- rather than the typical question "Which Buffett stock would you buy?"

John Maxfield: Wal-Mart (NYSE:WMT)

I'm not somebody who thinks Wal-Mart is doomed. At the same time, I do believe its best days are behind it.

Wal-Mart's U.S. division has now reported negative same-store sales in five consecutive quarters. Moreover, the company has now set it sights on moving down the volume chain into a realm traditionally occupied by deep discounters such as Dollar Tree and Family Dollar Stores. To me, this shows that even Wal-Mart has concluded that the market for its bread-and-butter megastores is saturated. 
With these issues in mind, the opportunity for growth (at least on the domestic front) appears to be waning.
Matt Frankel: General Motors (NYSE:GM)

GM's stock does have significant upside potential, but it's just too risky right now for my taste.


We still don't know the full effect and legal implications of the vehicle recalls, which seem to get bigger and bigger. After the latest round of recalls announced June 16, GM has recalled more than 16 million vehicles this year alone, more than the amount of new cars the company is expected to sell this year in the U.S. A recent report ties GM's faulty ignition switches to 74 deaths, while GM only claims responsibility for 13, so there is still a lot of potential for legal backlash.

Aside from the impossible-to-quantify eventual legal fallout, GM simply doesn't have the "wide moat" Buffett normally looks for in stocks. That is, there is nothing to give GM a distinct competitive advantage over rivals like Ford, Nissan, Toyota, and others. The auto industry itself could face challenges over time as fuel costs rise and technology evolves.

I love General Motors' products and actually own a GM car (which was just recalled), but the risk-reward just doesn't make sense, in my opinion.

Kingkarn Amjareon: Like Matt, I'm avoiding General Motors.

General Motors is one of the three largest auto manufacturers in the United States and, from a valuation point of view, does make an attractive value proposition.

However, General Motors' recall disaster poses serious bottom line risks for the company. With the recalls rolling in worldwide for a variety of safety issues, General Motors faces not only recall costs in the billions, but also painful fines or an expensive settlement with an increasingly hard-charging Department of Justice which could put short-term selling pressure on General Motor's stock price.

In addition, General Motors has suffered significant brand damage due to a series of highly publicized safety-related recalls which could hurt GM's topline growth and market share in the coming years.

Patrick Morris: I'm on the same page regarding Wal-Mart and GM, but I'd also add Starz (NASDAQ: STRZA) to the companies I'd avoid.


While it trades at a very reasonable 12 times forward price-to-earnings multiple, the business scares me. With people being willing to cut ties to their cable companies -- whom Starz depends on for profits -- its long-term "moat" and future seems incredibly uncertain.

In 1991, Buffett said; "most media properties continue to have far better economic characteristics than those possessed by the average American business. But gone are the days of bullet-proof franchises and cornucopian economics."

Considering the Berkshire Hathaway position in Starz has been reduced by more than 90% from $652 million at the end of 2012 to just $62 million at last count, one has to think Buffett believes it isn't just "bullet-proof franchises and cornucopian economics," but perhaps all economics which are now gone for media companies like Starz.

Jim Royal: Coca-Cola (NYSE:KO).

Sure, Coca-Cola will continue to grow and perform adequately, but the days of real fizz are long behind this sugar-water server.


Soda sales just don't have the pop they used to in the U.S., and while Coke still has excellent opportunities abroad and an enviable distribution network that allows it to capitalize on wherever consumers' drink tastes lead, the company is just too large to have the oomph that I'd want in my portfolio.

It's a problem shared by many of the positions in Berkshire's portfolio. Of course, the government is floating Buffett billions in cash via deferred capital gains taxes, so it makes plenty of sense why he wouldn't want to sell.

But for new investors, why buy Coke with expected long-term high single digit returns at best? I know quite a few places to receive 15-20% annual returns, so most of the large, long-tenured stocks in Berkshire's portfolio are not for me, anyway.


Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Jim RoyalJohn MaxfieldKingkarn AmjaroenMatthew Frankel have no position in any stocks mentioned. Patrick Morris owns shares of Berkshire Hathaway and Coca-Cola. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and General Motors. The Motley Fool owns shares of Berkshire Hathaway and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers