Buffett's Least Attractive Investments For 2011 (BRK-A, BRK-B, COP, COST, BDX, FISV, NLC, TMK, USG)

Last week we identified the ten Warren Buffett investments with the most implied upside.  But we also found that there were many Buffett investments in Berkshire Hathaway Inc.  (NYSE:BRK.A) which may be overvalued.

These positions include ConocoPhillips (NYSE: COP), Costco Wholesale Corporation (NASDAQ: COST), Becton, Dickinson and Company (NYSE: BDX), Fiserv, Inc. (NASDAQ: FISV), Nalco Holding Company (NYSE: NLC), Torchmark Corporation (NYSE: TMK), and USG Corporation (NYSE: USG).  A couple of these stocks were above their implied target prices, but some only had upside of 1% to 3%. This compares to Buffett’s largest implied upside picks which had more than a 10% hurdle.

We used the closing price as of  December 6 for the analysis.  We gave a percentage upside based on how much the stocks had to move to reach the Thomson Reuters consensus price target for a year from now.  We reviewed the prospects of each company which includes a brief description of the firms, how the shares have performed versus a 52-week range, and analyzed the dividend yields of each corporation.

ConocoPhillips (NYSE: COP) closed Monday at $64.18, above the oil giant’s consensus price target of $62.81.  Buffett kept his stake in the last quarter unchanged but that is after cutting his position over the past several quarters. He has indicated he might sell the stock for tax purposes but he has retained a  modest ownership position.  Conoco at least offers a 3.4% dividend yield.  Buffett admitted that the timing of this investment was wrong, but the good news is that shares are up more than 50% from the lows in 2009.

Costco Wholesale Corporation’s (NASDAQ: COST) stock is one of the few that has consistently risen lately.  It almost always trades at a premium over its peers, but that has not undermined its valuation.  After a $69.19 close on Monday, shares hit a 52-week high of $69.41.  Does it matter then that analysts have a consensus price target of $68.61 a year out?  The dividend yield here is only 1.2%. It is worth noting that shares peaked just above of $70.00 in late-2007 and in early 2008 .

Becton, Dickinson and Company (NYSE: BDX) is the first of several stocks that still have upside but that is so small that it is hardly worth mentioning.  Monday’s close for BD was $80.85, and its 52-week trading range is $66.47 to $81.65.  The consensus price target for one-year out is $82.23.  That implies an upside of only 1.7%, which is below its 2% dividend.  The shares still managed to challenge 52-week highs recently. The 52-week trading range is $66.47 to $81.65.

Fiserv, Inc. (NASDAQ: FISV) is an investment which we found confusing. It may be that the Buffett portfolio management team had a difficult time with the investment as well.  Berkshire Hathaway cut its stake to 3.91+ million shares last quarter after having taken this position just a quarter before at 4.4 million shares.  After closing at $57.51, its consensus price target a year out is $58.36 and that implies an upside of just under 1.5%.  Its 52-week trading range is $44.80 to $58.30.  With no past dividend and such a modest return likely Buffett may have changed his mind  on the information management and electronic commerce systems and services company.

Nalco Holding Company (NYSE: NLC) is another stock which has an extremely modest upside.  At $31.15 on Monday, that is a mere 2.2% below the consensus target of $31.83.  What makes this investment so limited is that shares have risen more than 50% from the lows of the summer. The stock just a hit a 52-week  of $31.24 on Monday.  Nalco is a water and chemicals firm that services many industries which run the gamut from water to paper to energy. It benefited  from the BP plc (NYSE: BP) oil  spill this year.  Buffett  trimmed his stake last quarter to 6.14 million shares from 9.15 million shares It is hard to say anything other than it is fully valued.  The dividend is only 0.5%.

Torchmark Corporation (NYSE: TMK) is not an exciting company for most investors. It sells life and supplemental health insurance and annuities.  Buffett has a long-term love affair with insurance products.  At $60.89, the implied upside is only about 2.8% to the consensus price target of $62.62.  A problem may be that it just hit a 52-week high of $61.40 on Monday. It is up almost 50% from the year’s low and it peaked just under $70 in 2007.  The yield won’t appeal to many. At only 1.1% it is lower than many insurance peers.  Torchmark is a rather small holding Buffett at just over 2.8 million shares.

The old US Gypsum, now USG Corporation (NYSE: USG), is a position that in which Buffett probably ignores outside valuation opinions.  He amassed a larger position higher in the capital structure than just the common stock. The firm is one of his housing and construction investments.  At $14.31, the sheetrock giant has a 52-week range of $11.21 to $25.59 but has only 2.2% implied upside to the consensus price target of $14.63.  As Buffett got much more control of USG in early 2009, it is obvious he is taking the real long outlook and Berkshire may hold the stock after the Oracle of Omaha is gone.

Even though these stocks are fully valued, Buffett is unlikely to care.  He has cut his position in several this year while other have been outstanding performers.  The reader can see the full Berkshire Hathaway portfolio of Buffett’s public holdings here.  An here is Buffett’s top ten implied upside investments for 2011 to review as well.

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JON C. OGG