Buffett's Biggest Upside Stocks, Summer 2010 (BRK-A, AXP, BAC, CMCSA, XOM, GCI, GE, IRM, MCO, SNY, WFC, WLP)

Warren Buffett does not have the same time frame as most investors.  How many of you buy with a “forever” outlook?  Buffett says he likes that term, short of whether he sees fundamental changes that wreck the forever thesis.  Berkshire Hathaway Inc. (NYSE: BRK-A) disclosed its latest full public equity portfolio a week ago and we wanted to see which stocks were in the top ten list of his picks with the largest upside potential now that the markets are  in turmoil.  The stocks which made the screen are American Express Company (NYSE: AXP), Bank of America Corporation (NYSE: BAC), Comcast Corporation (NASDAQ: CMCSA), Exxon Mobil Corporation (NYSE: XOM), Gannett Co. (NYSE: GCI), General Electric Co. (NYSE: GE), Iron Mountain Inc. (NYSE: IRM), Moody’s Corp. (NYSE: MCO), Sanofi-Aventis SA (NYSE: SNY), and Wells Fargo & Company (NYSE: WFC).

For starters, this is the largest upside to the average (mean) analyst target measured by Thomson Reuters.  Unlike the list at the start of 2010, the new hurdle was had more than 30% implied upside versus  under 20% at the start of the year.  The explanation for that is that analysts moved up the price targets of the stocks and now many of the stocks have sold off from highs with the market.

So we have included the closing price  on Monday, the consensus price target, that expected gain, a 52-week trading range, and we have even included the percentage that each stock has sold off from its 52-week high.  Lastly, we have  some color, background, and even some caveats where applicable.

American Express Company (NYSE: AXP) at $39.04 has a target of $50.58, with an implied upside of 29.9% and its 52-week range is $22.00 to $49.19.

• Now that financial stocks have pulled back and now that the credit card metrics are stabilized, this one is looking at least interesting.  If we double-dip into recession, those analyst price targets are likely to come plummeting down on Amex and this stock will feel like going from first class to standby on coach.

Bank of America Corporation (NYSE: BAC) at $15.40 has a target of $22.79, with an implied upside of 47.9% and its 52-week range is $10.57 to $19.86.

• BofA is a repeat stock on the ‘most upside stocks’ from the Buffett holdings.  The current financial reform regulation also poses a significant risk to that potential upside of nearly 50%. In fact, that puts this stock in no man’s land.  Maybe it is even a double no man’s land if suddenly that 10% of the US deposit cap argument comes back up in D.C.  Still, BofA is a turnaround story even if it is turned into a utility.  The $22.79 target is up from a $21.40 target back in early April before the last earnings season and the latest sell-off.

Comcast Corporation (NASDAQ: CMCSA) at $16.77 has a target of $21.46, with an implied upside of 27.9% and its 52-week range is $13.04 to $20.56.

• Historically it seems as though Buffett would have shied away from an industry that still operates on an EBITDA basis.  Not the case now.  The cable operator, and soon-to-be media network operator via the NBC-GE acquisition, pays a 2.2% dividend yield and the near-30% upside is not out of the realm of possibility even if Europe goes into the depths of Euro and Dollar parity.

Exxon Mobil Corporation (NYSE: XOM) at $60.19 has a target of $79.63, with an implied upside of 32.3%% and its 52-week range is $58.46 to $76.54.

• With XTO pending and with the largest market cap in America, it is a wonder why Buffett trimmed his stake two quarters ago in Exxon.  It is a return candidate for upside. The big risk here is, of course, the price of oil followed by refining margins.  But if Buffett wanted a huge oil exposure stake like he swung at the fences with  ConocoPhillips, Exxon Mobil is THE place for Buffett to go in the oil patch.  Where else can he park as much cash as he pleases in the sector?  If Buffett wants an oil play, he needs to swing out of COP for XOM.

Gannett Co., Inc. (NYSE: GCI) at $14.64 has a target of $22.75, with an implied upside of 55.3% and its 52-week range is $3.10 to $19.69.

• Gannett has returned from the depths of hell during the implosion of the old media, and is a repeat ‘upside winner’ for Buffett.  It has risen exponentially and has lost nearly one-quarter of its recent highs.  Between this stake and Washington Post, Gannett was the winner even if its portfolio of assets is not as hedged in non-media.  What is the real value of Gannett and others?  Depends upon whom you ask.  And it is worth noting that Buffett trimmed Gannett in the last two holding period reports.

General Electric Co. (NYSE: GE) at $16.01 has a target of $22.23, with an implied upside of 38.8% and its 52-week range is $10.50 to $19.70.

• GE is an interesting “most upside” winner here.  It did not make the cut the last time, but now it has seen its share price come off highs and its consensus price target go higher and higher.  That new $22.23 target is higher than previous expectations of $20.00, and the notion that Buffett’s large preferred investment is still underwater only makes this a more interesting stake.  Buffett is unlikely to every buy more common stock in a direct open-market transaction at current prices because he got into the preferred shares when the common stock was higher and he go a 10% dividend on the preferred shares.

Iron Mountain Inc. (NYSE: IRM) at $24.23 has a target of $32.71, with an implied upside of 34.9% and its 52-week range is $21.32 to $32.04.

• Iron Mountain is a classic business for Buffett on both physical record and back-up storage, and it is one he has raised his stake in over the prior holding period.  With its target being above the 52-week range its consensus target is actually lower than the prior reporting time.

Moody’s Corp. (NYSE: MCO) at $21.15 has a target of $29.67, with an implied upside of 40.3% and its 52-week range is $18.50 to $31.04.

• Buffett has steadily decreased his stake of late, for an obvious reason even if he did try a lame defense of ratings agencies at the latest shareholder meeting.  We almost even did not want to include it because of the financial reform and the controversy over Moody’s and S&P missing the entire meltdown of CDOs and other loans, derivatives, and loan packages.  We don’t even care about the upside here, too much damned heat in this kitchen.  Buffett probably likened the jalapenos here to ring-stingers.  Should it even be allowed to pay out a dividend?

Sanofi-Aventis SA (NYSE: SNY) at $28.91 has a target of $42.99, with an implied upside of 48.7% and its 52-week range is $27.90 to $41.59.

• Buffett the drug dealer?  Safety in pharma?  OK, so the beat goes on, but with an upside of this magnitude you know that the currency issue is a part of it for the ADR here.  After that, nothing more to add other than a cozy 4% yield.

Wells Fargo & Company (NYSE: WFC) at $28.71 has a target of $36.71, with an implied upside of 27.8% and its 52-week range is $21.57 to $34.25.

• Buffett’s favorite bank… He owns this stock personally by our calculation.  Financial reform or price performance may be the biggest reason why Buffett chose not to add to his stake in this last quarter.  Or maybe Buffett just has enough of the chuck wagon bank.  It is now TARP-free, but we wonder if Buffett participated in the warrant transaction in recent days.  If there is a big position added next quarter, then he did participate.

As a runner-up, there is one almost humorous notion.  WellPoint Inc. (NYSE: WLP) is one that Buffett has unloaded out of the portfolio after trimming stakes, likely as a result of the notion that health care reform will unfavorable for health benefits providers.  He may have supported Obama, but Buffett did not seem keen on taking risks and/or losses endlessly in this sector.

See this list versus Buffett’s prior biggest upside potential stocks for comparison, or you can peruse the most recent Buffett holdings.

Here is a brief table showing each of these by ticker:

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JON C. OGG

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