Few if any investors can hold a candle to Warren Buffett's investing track record over the past six-plus decades. Beginning with $10,000 in seed capital in the 1950s, the CEO of conglomerate Berkshire Hathaway (BRK.A 0.29%) (BRK.B 0.22%) has seen his net worth balloon to nearly $89 billion. Mind you, this figure doesn't include the $37 billion he's generously donated to various charities since 2006.
He's also done quite well for Berkshire Hathaway's shareholders. Since the mid-1960s, more than $400 billion in value has been created, with the company's stock rising by more than 2,700,000%.
Suffice it to say, when Buffett speaks, Wall Street listens.
While the Oracle of Omaha's calling card to success is buying and holding great businesses for extended periods of time, some of Buffett's holdings are pared down or sold completely each year. If I were to look into my crystal ball, I'd consider the following four Buffett stocks the likeliest to be on the sell list in 2021.
First up is money-center bank Wells Fargo (WFC 1.63%), which Buffett and his team have been paring down for years. Back in early 2017, Berkshire Hathaway owned close to 480 million shares of Wells Fargo. But as of the end of September, Buffett's company had reduced its stake to a little more than 127 million shares.
Although Buffett has always been a big fan of bank stocks and the financial sector, Wells Fargo looks to have broken one of Buffett's big rules: It broke the trust of its shareholders and consumers.
In 2017, Wells Fargo concluded an internal investigation that uncovered the opening of 3.5 million unauthorized accounts. These accounts were created because of aggressive cross-selling goals that needed to be met at the branch level. Buffet is a firm believer that it can take a long time to build up trust with consumers and investors but just minutes to lose it. Not long after this announcement, Buffett and his team began methodically reducing Berkshire's position in Wells Fargo.
While Warren Buffett isn't the type of investor to slow-step his exit from a position, reducing a nearly 480 million-share stake doesn't happen overnight. I'm expecting we'll see an ongoing paring down of this position in 2021.
Another Buffett stock that will probably be reduced in 2021 is cable and broadband giant Charter Communications (CHTR).
Unlike Wells Fargo, which has been a disaster for the past couple of years, Charter Communications has returned triple-digits for Berkshire Hathaway. The cable and broadband business typically provides predictable cash flow thanks to its subscription-focused business model. And it certainly hasn't hurt that Charter has spent billions of dollars repurchasing its stock. Buffett has always had a soft spot for share buybacks.
However, Berkshire Hathaway has also been trimming its stake in Charter for years, which is a telltale sign that the same will happen in 2021. The cable and broadband business model continues to be challenged by streaming services. With Charter currently valued at a lofty 31 times Wall Street's projected per-share profit this year, it's not exactly inexpensive for a company growing its top line at only 5% each year.
Furthermore, the prospect of higher corporate tax rates under the Biden administration could reduce operating cash flow and slow Charter's ability to buy back its stock. These buybacks have been the company's key growth driver for years.
Biotech blue chip Biogen (BIIB 0.45%) (say that three time fast) might also be given the heave-ho by midyear.
Biogen was added last year, most likely by Warren Buffett's investing lieutenants, Todd Combs and Ted Weschler. I say likely, because Buffett has never been a fan of keeping up with clinical trials or patent cliffs. My suspicion is Combs and Weschler saw value in Biogen's existing assets as well as the potential of experimental Alzheimer's disease drug aducanumab.
Unfortunately, two negative catalysts have made Biogen far less attractive. To begin with, Biogen lost a patent court ruling in June that allowed generic drug developers to launch copycats of its blockbuster multiple sclerosis drug Tecfidera. It was expected that Tecfidera would be protected against generic competition until 2028, but that hasn't proven to be the case.
The other issue is that a committee of outside experts voted overwhelmingly against the idea of approving aducanumab in November. Though the U.S. Food and Drug Administration isn't required to follow the votes of its panels, it does so far more often than not. Alzheimer's has proven to be a tricky disease from a clinical perspective, and Biogen's aducanumab may stumble before it even has a chance to dash out of the gate. This may be more than enough incentive for Combs and Weschler to exit this position.
Lastly, don't be surprised if Buffett and his team give the boot to money-center bank JPMorgan Chase (JPM 0.58%).
The writing really looks to be on the wall, with Berkshire Hathaway reducing its stake in JPMorgan Chase from 59.5 million shares to begin 2020 down to less than 1 million shares by Sept. 30, 2020. Keeping in mind that Buffett doesn't trim stocks once he loses faith in a position, this is a telltale warning that JPMorgan Chase is getting the axe.
Perhaps the bigger mystery is why JPMorgan Chase is on the chopping block. This is a well-capitalized big bank with solid return on assets and a transparent CEO in Jamie Dimon.
Perhaps the answer is that Buffett has fancied Bank of America (NYSE: BAC) as his preferred money-center bank throughout the decade. Last year, Berkshire received the OK from the Federal Reserve Bank of Richmond to increase its stake in BofA to as high as 24.9%. On the basis of book value, Bank of America is the better bargain of the two, which may be the deciding factor.