Legendary Berkshire Hathaway (BRK.B) Chairman and CEO Warren Buffett is perhaps one of the most widely followed investors of all time. The so-called “Oracle of Omaha” has garnered a cult-like following over the past five decades, with his legion of followers swearing by the results of his value investing style.
That's why the quarterly filings from Berkshire Hathaway are a matter of headline interest for many investors, who closely track the latest Buffett stock buys and sells in an attempt to gain insights about how the legendary investor is positioning his portfolio. And in the latest quarter, Buffett boosted his cash pile as he trimmed some long-time equity holdings.
Along with General Motors (GM), here's a look at two notable Buffett stocks that just got dumped from Berkshire's portfolio - despite being giants in the consumer staples sector, with Dividend King credentials.
Johnson & Johnson
First up is healthcare giant Johnson & Johnson (JNJ), more popularly known as J&J. Founded way back in 1886, J&J develops medical devices, pharmaceuticals, and consumer packaged goods. With operations in more than 175 countries, J&J is one of the world's largest consumer healthcare companies, and has a market cap of $360.6 billion.
JNJ is down 12.7% on a YTD basis, underperforming the S&P 500 Index ($SPX), which has gained 18.3%. The stock offers a dividend yield of 3.1%, backed by over 60 consecutive years of growth - making JNJ a favorite pick among income investors.
In Q3 2023, J&J beat expectations by reporting sales of $21.3 billion, up 7% from the year-ago period. Meanwhile, adjusted EPS arrived at $2.66.
However, with costly legal issues still lingering, J&J is now considering a bankruptcy for a business unit spun off specifically to handle the company's billions in litigation costs. J&J has already spent upwards of $4.5 billion on settlements, fees, and other costs related to talc litigation.
Currently, JNJ is priced at 4.25x forward sales, and 4.88x book. Both metrics are well above the sector median for healthcare stocks, suggesting the underperforming shares are still priced at a premium.
Analysts remain cautiously optimistic on the stock, based on the consensus “Moderate Buy” rating, with a mean target price of $177.88. This denotes an upside potential of about 18.6% from current levels. Out of 18 analysts covering JNJ, seven have a “Strong Buy” rating, two have a “Moderate Buy” rating, and nine have a “Hold” rating.
Procter & Gamble
The next stock Buffett unloaded was Procter & Gamble (PG), more popularly known as P&G. Around since 1837, P&G is one of the world's largest manufacturers of consumer goods, with brands such as Tide, Pampers, Bounty, Gillette, and Oral-B in its portfolio. P&G currently commands a market cap of $356 billion.
PG is up just 1.4% on a YTD basis, lagging the broader S&P 500. The stock offers a dividend yield of 2.47%, and that shareholder payout has increased consistently for over 65 consecutive years.
P&G's results for the latest quarter beat expectations, as pricing power helped to offset inflationary pressures. Adjusted EPS grew by 17% from the year-ago period to $1.83, while revenues improved 6% to $21.9 billion.
Like JNJ, shares of PG carry a surprisingly steep valuation, especially considering the stock's relative underperformance this year. PG is priced at 23.5x forward EPS, 4.19x forward sales, and 7.56x book - all of which are considerably higher than the respective sector medians for consumer staples stocks.
Analysts maintain an average “Moderate Buy” rating on the stock, with a mean target price of $166.47. This denotes an upside potential of about 10.9% from current levels. Out of 18 analysts covering P&G stock, 10 have a “Strong Buy” rating, two have a “Moderate Buy” rating, and six have a “Hold” rating.
