Three overvalued Buffett stocks: Morningstar names companies best to avoid

Morningstar highlighted the three most overvalued stocks in Warren Buffett's Berkshire Hathaway portfolio, as of mid-September. The agency advised investors to avoid these expensive securities.

Morningstar calls the shares of investment bank Jefferies Financial Group the most overvalued security in Berkshire Hathaway's portfolio. Berkshire's stake in it is less than 1%, and it is one of the smallest positions in Buffett's portfolio. "The Oracle of Omaha" invested in Jefferies in the third quarter of 2022 and hasn't ramped up or down since then, StockCircle shows . The company doesn't have a sustainable competitive advantage because it focuses on less profitable mid-tier and smaller trades, according to Morningstar.

The fair price of Jefferies shares is $47, the agency believes. This implies a 33% drop in quotations. At that, since the beginning of the year the company's value has already decreased by more than 30%.

The second stock in Buffett's portfolio that Morningstar advises avoiding is wood products maker Louisiana-Pacific. Berkshire owns about 8% of the company's securities; their weighting in Berkshire is small - less than 0.2%. Morningstar believes this business also fails to offer investors any unique upside. While the wood products market in North America is very competitive, many players are producing standardized products without the ability to stand out, the agency notes.

Morningstar's fair valuation of Louisiana-Pacific corresponds to a nearly 20% decline in the company's value to $70 per share. This year, its quotes have lost almost 16%.

The third company Morningstar considers overvalued is payment system American Express. It is one of Berkshire Hathaway's oldest investments and the second largest position in the portfolio: the holding owns more than 20% of the company. Morningstar recognizes that American Express has a broad competitive advantage because of its closed-loop system: the company issues its own cards to customers, operates a payment network and works directly with merchants. It also has a strong financial position and a lower-risk credit card portfolio than its competitors. Nevertheless, the agency's analysts believe that even taking this into account, the securities are too expensive.

Morningstar estimates they should trade at $265 - 22% cheaper than current quotes. American Express shares have risen 17% since January.

This article was AI-translated and verified by a human editor