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Jim Cramer: Only 1 Of Buffett’s Top Picks Makes Sense
Aspire, Thought Leaders | 14 May 2015
By: Raymond Leung
Articles (142) Profile

In billionaire investor Warren Buffett’s Berkshire Hathaway (BRK) annual shareholders meeting, the 84-year-old chairman shared his top four picks. Former hedge fund manager Jim Cramer believes that it is time to breakdown the merits of these picks to investors.

As he said, “just as we can’t judge a book by its cover, we can’t judge a man by his big four.” His top four picks include American Express (AXP), Coca-Cola (KO), International Business Machine (IBM) and Wells Fargo (WFC).

AXP Weak; Buy Visa Instead

Source: Income Statement for American Express, Bloomberg

AXP has been part of a hot debate topic on the Wall Street after the credit card giant’s share price took a ten percent hit. The plunge was attributed to its losses of Costco co-branding partnership to Citi and Visa, co-branding with JetBlue and getting involved in an anti-trust lawsuit.

Despite the series of bad news, Buffett increased his position in AXP because it is now “cheaper.” On the other hand, Cramer feels that AXP had lost its edge because of the way it is run, causing partnerships to falter and relying on cost cutting for negligible growth.

Source: Analysts’ Calls for Visa, FactSet Research Systems

Cramer feels that other credit card companies like Visa (V) and MasterCard (MA) are better buys because of their stronger growth. Looking at the graph above, analysts from the Wall Street agrees with Cramer.

Visa has 79 percent “Buy” calls and the rest “Hold” calls. It has a potential average target price of $74.58 based on 39 research reports.

Coca-Cola Might Be Too Sweet; Try PepsiCo

Source: Income Statement for The Coca-Cola Company, Bloomberg

Coca-Cola (KO) is the company that Cramer finds interesting because of its stake in Monster Beverage and Keurig Green Mountain (GMCR). The group has a 16 percent stake in GMCR, which maybe a homerun for KO as analysts have high anticipation for the new Keurig Cold Machine.

KO is sweetened by the 3.2 percent yield that investors stand to receive based on calculations by Cramer. In addition, KO will gain in the event of a hike in the dollar as it is hedged well against Euro and Yen.

Source: Analysts’ Calls for PepsiCo, FactSet Research Systems

Despite the positive comments, Cramer still prefers PepsiCo (PEP) over KO. Given the 28 ratings that were given by analysts, 64 percent of it were “Buy” calls and have an average potential target price of $106.41.

IBM Needs More Time For Innovation

Source: Income Statement for International Business Machines, Bloomberg

“A work in progress” is the description used by Cramer to describe the International Business Machines Corporation (IBM). However, he remains skeptical about how fast IBM can transform itself from a hardware company with an edge in software and consulting, to a data miner that can bring in social, mobile, cloud and cognitive thinking.

Source: Analysts’ Calls for Apple, FactSet Research Systems

Apple (APPL) has been a long preferred tech company to Cramer and it is no surprise that he prefers it over IBM. Views from the street are largely aligned with Cramer’s, there are 72 percent “Buy” calls giving APPL an average potential target price of $146.20.

Wells Fargo Will Soar With Interest Rates

Source: Income Statement for Wells Fargo, Bloomberg

Wells Fargo (WFC) is the only company that Cramer can see eye to eye with Buffett. Cramer favours WFC as he believes that the bank, currently valued at $55 has a potential value of $65. A potential catalyst that could lead the share price surge is an increase in interest rates as cash deposits will bring in more revenue.

Source: Analysts’ Calls for WFC, FactSet Research Systems

However, the Wall Street are not as bullish on WFC as Cramer, with only 38 percent “Buy” calls, 53 percent “Hold” calls and the remaining, “Sell” calls. The average potential target price of $57.51 based on 34 research reports is much lower than Cramer’s target of $65.

Cramer: Do Your Homework

Regardless of what the Wall Street or investment gurus say, investors should still always do their own research. Cramer would advise lazy investors to put their money in an index fund instead of following rumours or analysts’ sentiments blindly.

Despite Cramer’s skeptics about some of Buffett’s stock picks and advice, he thinks that investors interested in BRK’s portfolio should invest directly in the latter. An investment in BRK would give investors the exposure to all of Buffett’s holdings and also the lucrative insurance business that it runs.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

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