Warren Buffett is famous for taking a long view of the investments he selects for Berkshire Hathaway's equity portfolio. In fact, when great businesses are coupled with great management teams, Berkshire's favorite holding period is forever.
While Buffett makes stock purchases with the intention of holding them for a decade or longer, everyone enjoys rapid price appreciation. Investment bank analysts following the stocks in Berkshire Hathaway's equity portfolio are predicting big gains in the near term for two of its larger holdings. Around $20 billion of Berkshire Hathaway's portfolio is invested in a pair of stocks that could soar 20% or more over the next 12 months, according to consensus price targets from Wall Street.
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Chevron
Buffett trimmed Berkshire's Chevron (CVX +1.28%) stake in the third quarter but the position is still the portfolio's fifth largest. Worth about $18.6 billion at recent prices, the oil and gas producer makes up nearly 6% of the portfolio.
Shares of Chevron recently fell hard in response to third-quarter earnings that dropped 40% year over year to $3.48 per share. Investors also reacted negatively to an announcement that it would acquire Hess, an independent oil and gas producer with shale and offshore assets, for $53 billion in an all-stock deal.
Investors ran for the hills, but Wall Street analysts are still predicting strong gains ahead. The average price target on the stock suggests it can climb 25% over the next 12 months.
Chevron earned an adjusted $3.48 per share in the third quarter. That wasn't necessarily bad, but it was 40% less than the company reported in the previous year period.
Amazon
Berkshire Hathaway sold some Amazon (AMZN +0.42%) stock in the third quarter. It's not a top holding, but Buffett's sitting on shares worth around $1.3 billion at recent prices.
Shares of Amazon are up about 15% since the end of September. Despite the stock's recent run-up, Wall Street has higher expectations still. The consensus price target on Amazon implies a gain of 20% over the next 12 months.
The market received Amazon's third-quarter earnings report with a lot more enthusiasm than Chevron's, and it's easy to see why. Net sales climbed 13% year over year, driven by strong growth from both its cloud computing segment and its e-commerce division.
Amazon forecast fourth-quarter sales to land in a range between $160 billion and $167 billion this year, which jibes with analysts polled by LSEG, who expect $166.6 billion.
Amazon's merchants can't be happy about how important paid advertising has become to their businesses, but investors are thrilled. In addition to its standard take rate, the e-commerce pioneer squeezed an extra $12.1 billion in ad payments from its merchants during the third quarter.
Ad sales rose 26% year over year during the third quarter, but it isn't deterring merchants from selling their wares on the platform. Third-party seller services revenue soared 20% year over year.
Good stocks to buy now?
Wall Street says these are good stocks to buy now, but you should place a higher value on your portfolio's performance than the average sell-side analyst places on his or her reputation. The folks who set attention-getting price targets can quietly adjust them downward if things don't work out, but that won't help you recover any losses.
Savvy energy investors realize Chevron is using shares of its own stock to buy Hess because its stock valuation is relatively high. Chevron offers a tempting 4.1% dividend yield at recent prices, but you can probably find better energy stocks to buy at even deeper discounts right now.
Third-party sellers flocking to Amazon's platform despite an increasing reliance on advertising for premium placement is a sign of a huge competitive advantage. However, this advantage is already baked into the stock's recent price. It's currently trading at a nosebleed-inducing multiple of around 55 times forward-looking earnings expectations.
I'm in no hurry to sell my Amazon shares. At the same time, I'm not about to buy more shares of a company already worth over $1.5 trillion at such a lofty valuation. With both of these stocks, it's probably best to stay on the sidelines for now.
