Some of the stocks in Warren Buffett’s Berkshire Hathaway portfolio are now correcting near favorable entry levels where value- and income-minded investors can smartly buy in.
It is always interesting to look at the stocks that high-profile investment gurus like Warren Buffett are buying. Last year, however, was not a great year for Berkshire Hathaway (BRK.B), which was weaker than the S&P 500, losing 4.7%.
The weekly volume pattern in BRK.B does show some signs of accumulation, so 2012 could be a better year for Berkshire Hathaway. One of the stocks that Buffett bought more of in the first quarter, Bank of New York Mellon (BK), has had a rough two months and has dropped 16% so far this quarter.
Coincidentally, Buffett’s top holding, Coca Cola Co (KO), is also the largest holding in my “Charts in Play” portfolio, and two of his other top holdings now also look attractive for new purchases.
Chart Analysis: The Coca-Cola Co (KO) made a high in April of $77.82 but dropped to a low of $73.47 last week. KO currently yields 2.8%. It makes up 19.7% of Berkshire Hathaway’s portfolio.
- The breakout in March above resistance at line a was very positive, and KO has retraced 38.2% of the rally from the January low at $6.56
- There is additional support at $72 (line a) along with the rising 20-week exponential moving average (EMA)
- The 61.8% support is now at $71
- Relative performance, or RS analysis, surged sharply on the breakout and shows a pattern of higher lows, line b
- On-balance volume (OBV) confirmed the breakout when it moved through resistance at line c. It is still well above its weighted moving average (WMA)
- Daily OBV (not shown) has dropped below its weighted moving average
- There is initial resistance now in the $75.30-$76 area
American Express (AXP) has corrected sharply from the recent high at $61.42 and has now dropped back to its rising 20-week moving average at $55. The stock makes up 11.6% of Berkshire Hathaway’s portfolio.
- AXP broke through longer-term resistance, line d, in the $54 area last March
- The relative performance line also made new highs in April, which is positive. It has good support at line f
- Weekly OBV was also able to overcome major resistance, line g, in March
- Daily OBV (not shown) did confirm the recent highs but has now dropped back below its weighted moving average, suggesting the correction is not yet over
- Next resistance for AXP is in the $57.30-$58 area
NEXT: Another Buffett Holding to Buy at Nearby Support
|pagebreak|ConocoPhillips (COP) has dropped sharply from the high at $59.68 and hit a low of $50.66 last week. This is a drop of just over 15%. COP currently yields 5.2% and makes up 2.9% of Berkshire Hathaway’s portfolio.
- The uptrend from the 2009 lows, line c, was broken last week, and there is further support, line b, in the $49.50-$50 area (line b)
- There is additional support now in the $48.50-$47 area
- RS line has pulled back to long-term support at line e, but it needs to move through resistance at line d to signal that COP is outperforming the S&P 500
- Weekly OBV dropped below its weighted moving average in the middle of April and is now back to good support at line g
- Daily OBV (not shown) turned negative in March and still has not bottomed out
What It Means: Since I am no expert in fundamental stock analysis, it is often helpful to look at the stocks that investing giants like Warren Buffett and George Soros are buying. I believe that looking at their picks from a technical standpoint can help identify good entry levels and also better control risk.
Since I have previously recommended Coca Cola Co (KO), I will not be doing additional buying for my model portfolio, but for those who are not currently long, I would still buy as suggested below.
Even though ConocoPhillips (COP) is still in a downtrend, the long-term positive outlook for crude oil prices and its very attractive yield make it look favorable on a test of stronger support.
Other major holdings of Berkshire Hathaway include International Business Machines (IBM), 17.8%; Wells Fargo & Co (WFC), 17.8%; and Procter & Gamble (PG), 6.5%.
How to Profit: For American Express (AXP), go 50% long at $54.62 and 50% long at $53.78 with a stop at $50.48 (risk of approx. 6.8%).
For ConocoPhillips (COP), go 50% long at $50.32 and 50% long at $49.58 with a stop at $46.88 (risk of approx. 6.1%).
Those not currently long Coca Cola Co (KO) could go 50% long at $73.58 and 50% long at $73.04 with a stop at $70.77 (risk of approx. 3.5%).