Everyone likes to see the Warren Buffett stock holdings, particularly when there are changes.  He has a different timeframe than most investors for Berkshire Hathaway Inc. (NYSE: BRK-B, BRK-A) because it’s “forever.”   But now that we are entering Q2, 2010, we wanted to see which of the Buffett portfolio stocks have the most upside for the next year based upon newer consensus analyst price targets.  This list is the same in size of the top 11 stocks with the most upside, but it differs from Q1 because so many stocks have performed well along with the broad market. The eleven Q2-2010 list of stocks with the highest upside to analyst price targets are Bank of America Corporation (NYSE: BAC), The Coca-Cola Company (NYSE: KO), ConocoPhillips (NYSE: COP), Gannett Co., Inc. (NYSE: GCI), Iron Mountain Inc. (NYSE: IRM), Nalco Holding Co. (NYSE: NLC), Republic Services Inc. (NYSE: RSG), Sanofi-Aventis (NYSE: SNY), UnitedHealth Group, Inc. (NYSE: UNH), and WellPoint Inc. (NYSE: WLP).

Many of the Buffett stocks did not make the list this quarter due to performance and shares rising up too close to or above their consensus price targets.  Those were Comcast Corporation (NASDAQ: CMCSA), General Electric Co. (NYSE: GE), Kraft Foods Inc. (NYSE: KFT), SunTrust Banks, Inc. (NYSE: STI), and US Bancorp (NYSE: USB).  Even his favorite bank, Wells Fargo & Company (NYSE: WFC), did not make the list due to its performance in Q1. Here was the year to date performance of each: Comcast rose 12.4%; GE rose 21.8%; Kraft rose by 12.7%; SunTrust 33.9%; US Bancorp rose by 16.7%; and Wells Fargo rose by 16.4%.  For that matter, Buffett’s own Berkshire Hathaway “A-Shares” rose by over 23%.

Many value investors chase the Buffett stocks, and his most recent full list of latest holdings is here.  What we looked for was the current price based upon the April 1 close versus the 1-year mean price target from Thomson Reuters.  We then showed what the implied upside was for these stocks to the mean price target.  What we did not add into the equation was the dividend yield into the returns, but we did include the dividend yield after showing the expected or implied return to the analyst consensus targets. Lastly, we have offered some analysis on each stock to explain the upside or for expanded coverage ahead.

Bank of America Corporation (NYSE: BAC) is a repeat on the list at $18.04 and 1-year mean price target of $21.40, implying upside of 18.6%.  The stock was at $14.99 a quarter before and the implied upside was 40% when shares were lower.  The dividend here is 0.2%, and it may still be a while before that changes.

• BofA has still been a serious move up from the bottom.  It is the top of the questionable banks and is the biggest by deposits, has a new CEO and is out from under the TARP.  The strategy is still to execute on the bank operations in place rather than to make acquisitions and rather than busting the company up.  Shares are up close to 20% in the last quarter.

ConocoPhillips (NYSE: COP) is a repeat at $52.02 and 1-year mean price target is $58.67, implying upside of 12.7%.  That target was over 15% a quarter ago and the stock is up almost 4% from the start of the year.  This now sports a dividend north of 4%.

• ConocoPhillips has been a shrinking position for Buffett and he is exiting these. But this stock has recovered handily from lows.  The company is turning around, has raised its dividend, thinned out its portfolio with divestments, and is really on track for better operations.  Maybe Buffett should keep it.

The Coca-Cola Company (NYSE: KO) is a new entrant on Buffett’s biggest upside stocks at $55.30 with a $61.86 target and an implied upside of 11.8%.  It also sports a 3.2% dividend yield.

• What is there to add about Coke?  Water, specialty sports drinks, international growth, and on and on.  There is plenty of operating income that will give room for dividend hikes and more acquisitions down the road.  Buffett even told Pepsi’s CEO Indra Nooyi that he drinks a Coke when he eats chips from Pepsi’s Frito-Lay.

Exxon Mobil Corp. (NYSE: XOM) is a decreased holding for Buffett but a new holding with the most upside.  At $67.61, it has an implied upside of more than 18% to the $80.25 target. It also sports a 2.5% dividend yield.

• Exxon has been in limbo on its latest acquisition of XTO Energy for natural gas and the shares are at the bottom of the $63.56 to $76.54 range of the last 52-weeks.  As large as the market cap is here, we’d note that this would be the easiest place of all oil stocks with the least impact on share prices for Buffett to get in and out of in the oil patch (or anywhere else for that matter).

Gannett Co., Inc. (NYSE: GCI) at $16.70 is a repeat on the list and has risen more than 10% since the last review.  It has over 30% of implied upside to the $21.80 analyst target, which is far higher than the mere 15% targeted upside on last review.  The dividend yield is 1%.

• Gannett is in the media sector and the stock has recovered exponentially.  The analysts have boosted price targets as shares have risen and the questions remains if the recovery can continue.  As recently as 2007, this was a $60+ stock and an $80 stock in 2005.

Iron Mountain Inc. (NYSE: IRM) is a repeat performer despite having risen from $23.00 a quarter ago to $27.45 now with implied upside of 25%.  Its news dividend yield is 0.9%.

• Its 1-year mean price target is $34.33, up marginally from $33.50 a quarter ago.  That implies a new upside of 25% versus upside of 45% a quarter ago.  Iron Mountain shares have bounced after a period of floundering.   It also has started a dividend and many feel the business spending climate is migrating back toward the company compared to in 2009.

Nalco Holding Co. (NYSE: NLC) is a new holding and at $24.76 it has an implied upside of 12.1% to the $27.77 mean target.  Its dividend is small at 0.6%.

• Nalco has a 52-week range of $13.22 to $26.63 and is in the manufacture and sale of specialized service chemical programs worldwide for water, chemical processes, pollution control and more.  The stock is down over the last quarter versus an up market and shares hit a high in January of $26.63.

Republic Services Inc. (NYSE: RSG) is also a new Buffett holding.  At $29.18 it has an implied upside of 14.5% to the $33.38 mean price target. It also sports a 2.6% dividend yield.

• The garbage, ergo waste management, industry is another utility type industry and is a new holding for Buffett.  Frankly, the new holding should be no surprise.  Buffett bought in after or around the same time that his buddy Bill Gates added shares and put a man on the Board of Directors.  Its 52-week range is $17.77 to $29.82 and this was a $35 stock back in 2008.  It has everything Buffett likes… steady business, growth, huge barriers to entry, timeless outlooks, and locked-in customers with limited competition.

Sanofi-Aventis (NYSE: SNY) is a surprise entrant with the most upside.  At $37.44 it has implied upside of 13.5% to the $42.49 target and has a 4.4% dividend yield at today’s prices.  This is a small Buffett position and also not one he really decides on, so enough said.

UnitedHealth Group, Inc. (NYSE: UNH) and WellPoint Inc. (NYSE: WLP) are both going to be included here.  At $32.99, UnitedHealth has an implied upside of 18.6% to its target of $39.13, and its dividend is 0.1% today. At $64.71, WellPoint has an implied upside of 14.4% to the $74.08 and it does not have a dividend.

• It really seems as though Buffett has not sold out of these health insurance stocks because of his political backings in 2008.  He has sold these off over the last three quarters in a row.  Buffett obviously feels that having US Congress and Joe Public as the gatekeeper for turning these into utilities is not a good spot to be in during the transition.  It is just surprising he still holds any shares at all here in these two.

Several stocks with the most implied upside were very close with upside still over 10% but short of the 11.8% of Coca-Cola.  The banks performed in Q1 and it should have probably been noted that the reason so many banks were there last time was due to performance in Q4-2009 being one of major profit taking and lightening up after exponential gains from the March-2009 lows.  The data on the mean price target consensus from Thomson Reuters can also have a lag to it and will change again after this next upcoming earnings season.

We took all opinion out of this except for in the conjecture provided on each stock.  This was going to be a 10-stock list, but we kept it at 11 to mirror last time after the previous list was so skewed to banks.  Had we included the stocks that were right at 10% as well, the list would have been 15 or 16 stocks.

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JON C. OGG
APRIL 5, 2010

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