Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett is arguably in a league of his own when it comes to investing. He’s grown his net worth from around $10,000 in the mid-1950s to $109 billion today (note, this doesn’t count the $37 billion he’s generously donated to charity since 2006), and…
his company’s stock has averaged an annual return of 20% since 1965.
But in spite of these supercharged returns, Buffett and his investing team aren’t infallible.
Berkshire Hathaway currently owns 48 securities (46 stocks and two exchange-traded funds), many of which are fantastic investments that you could put money to work in right now. However, three Buffett stocks stand out for all the wrong reasons. While all three of these companies could make for solid investments at some point in the future, they’re wholly avoidable in June, and probably the rest of 2021.
Though there are bound to be plenty of groans given how popular it is among growth stock investors, the first Buffett stock to steer clear of in June is cloud data-warehousing company Snowflake (NYSE:SNOW).
To be fair, Snowflake is doing plenty of things right, which is why it’s attracted such a loyal following among growth-seeking investors. Sales were up 110% in the fiscal first quarter from the prior-year period, and it delivered a net revenue retention rate of 168%. This means existing clients spent 68% more year-over-year.
Snowflake also offers clear-cut competitive advantages. For example, its solutions are layered atop the most-popular cloud infrastructure services, such as S3 and Azure. This allows Snowflake customers to seamlessly share data, even across competing platforms.
The company also shuns subscriptions in favor of a more transparent pay-as-you-go model. Businesses pay based on the amount of data they store and the number of Snowflake Compute Credits used. This lets its clients better manage their expensing.
So, why avoid Snowflake if the company is growing lightning-fast and it offers clear competitive advantages? The biggest issue is justifying its current valuation. Even factoring in Wall Street’s expectation of 88% full-year sales growth this year, Snowflake is currently valued at a multiple of 66 times sales. What’s more, it’s still valued at 19 times Wall Street’s consensus sales if you look four years into the future. That 19 times sales multiple is where most cloud stocks are valued relative to current-year revenue.
Furthermore, value stocks have a tendency to outperform growth stocks during the early stages of an economic recovery. That’s because investors usually place added emphasis on bottom-line results when exiting a bear market and/or recession. For Snowflake, it’ll probably be another three or four years before it turns the corner to recurring profits.
It’s an intriguing company with a bright future, but it’s simply not worth the nosebleed premium.
Another Buffett stock to avoid like the plague in June is residential and small business cable, phone, and broadband provider Charter Communications (NASDAQ:CHTR).
Like Snowflake, Charter has been a wildly successful investment for Berkshire Hathaway. A quick look at the company’s first-quarter operating results shows more than 31.4 million customer relationships (most of which are residential), with a steady uptick in internet customers. Charter gained approximately 2 million new internet customers over the past 12 months.
But there’s a lot not to like about Charter, as well. For example, cord-cutting is…
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