Warren Buffett is legendary for his long-term buy-and-hold approach to investing, and as a result, investors big and small closely watch his buying and selling activity. There's no crystal ball that will tell all of us what his next move will be, but some of our top Motley Fool contributors think there are good reasons he may sell these three stocks sooner rather than later.
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: Buffett tends to hold on to his stocks for a long time, so it's always hard to project what he might sell. However, Verizon has already reaped many of the benefits of its smart strategic moves since Buffett's 2014 purchase of the telecom, and now might be a good time for him to exit his small position based on industry conditions.
Verizon is a typical Buffett favorite, sporting relatively low growth, a high dividend yield of 4.5%, and having been out of favor when he purchased the stock. The company took on huge debt in order to finance the full takeover of its Verizon Wireless division, ending a joint venture that had siphoned away 45% of the unit's profits to Verizon's partner. Since then, the telecom has made incremental progress in paying down long-term debt, but it still remains a substantial overhang.
I can see two reasons Buffett could sell Verizon. First, the wireless industry is going through a price war that could become even more brutal in the long run, and that could hurt Verizon's profits. But perhaps more compelling is simply that Buffett might choose to concentrate his bets in the industry on rival AT&T, which pays an even higher dividend yield above 5%. Either way, a Verizon sale wouldn't be a bad move from Buffett.
Todd Campbell: No one knows what's going on inside Buffett's brain, and trying to speculate is a fool's errand. But if pressed, I'd say Sanofidoesn't jibe with Buffett's long-term sock-it-away mantra.
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Sure, Sanofi is a global drugmaker with a big exposure to a big and growing patient population (diabetes), but its top-selling drug could face off against generics soon. And in the past, Buffett has been more willing to make big bets on stocks outside of healthcare.
Sanofi's long-lasting insulin, Lantus, is a $7.1 billion-per-year blockbuster, but its patent has expired, and well-heeled competitors such as Eli Lillyare champing at the bit to challenge it. Lilly's Lantus copycat has already launched in Europe, and an FDA approval could be forthcoming. Given that Lantus accounts for a quarter of Sanofi's sales, it would appear there's a lot of risk associated with its revenue and therefore its stock price.
I also think this holding could end up out of Berkshire Hathaway's portfolio sooner rather than later because of its small size. Sanofi only makes up about $1.9 billion of the $100 billion plus fund, and to me that suggests that it's far from a core holding.
: When buying a stock, Buffett is known for taking a company's economic moat -- that is, its ability to protect long-term profits from would-be competitors -- under serious consideration. That's why I think Johnson & Johnson might be one of the next stocks Buffett decides to sell.
J&J's recent growth trend has been fueled almost entirely by its pharmaceutical division, and therein lies the problem. Although J&J's global pharmaceutical sales grew by 4.2% in the fourth quarter of 2015 -- when excluding the negative impacts of foreign exchange, the company's competitive positions in key markets such as oncology, hepatitis C, and inflammatory diseases have been eroding over the past year.
In oncology, J&J's star prostate cancer drug, Zytiga, saw its international sales essentially flatline on an operationa; basis in 2015, probably reflecting the increasing market penetration of alternative therapies. That's especially bad news for J&J, because Zytiga has been one of the company's top growth products in recent years.
Making matters worse, sales of J&J's hepatitis C drug, Olysio, dropped by a staggering 86% last year because of the approval of Gilead Sciences' competing drug, Harvoni. And the company's blockbuster anti-inflammatory medicine, Remicade, is now facing the threat of cheaper generic versions known as bosimilars in both the EU and the United States. .
All told, J&J does sport a highly productive clinical pipeline that could erase some of these noteworthy gains rival drugmakers have made. However, Buffett tends to prefer companies with economic moats that look nearly unassailable -- and J&J no longer fits that description.
The article The Next Stock Warren Buffett May Sell originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. George Budwell has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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