The first quarter ended March 31 marked the fourth consecutive quarter of the latest bull run for U.S. stock markets, with the major indexes once again reaching new unprecedented highs. The S&P 500 surpassed 3,900 for the first time in history during this period, the Nasdaq rocketed above 14,000 and the Dow Jones Industrial Average beat the 33,000 mark.
The U.S. stock market continues to be valued far higher than what the country’s collective businesses are currently worth. The Buffett Indicator, which is the ratio of total market cap to gross domestic product, stands at 200.5% as of June 4, indicating that the U.S. stock market is significantly overvalued. This metric is named after Warren Buffett (Trades, Portfolio), who famously called it “probably the best single measure of where valuations stand at any given moment.”
Due to the unprecedented intervention of the Federal Reserve to keep stock prices high, GuruFocus now includes in this chart the total assets that the Fed has poured toward propping up stock prices. With Fed support factored in, the valuation ratio of the Buffett Indicator stands at 147.6%, which is still overvalued but not by quite as much. It should be noted that Fed support disproportionately benefits the nation’s largest companies.
In the midst of this overvalued market, there are some stocks that gurus are selling at a faster rate than others, either to take some profits on abnormally high prices or to cut their losses on a name that is expected to underperform. According to GuruFocus’ Hot Picks, a feature which allows investors to screen for the stocks that had the most guru buys or sells in the most recent quarter, the five stocks that gurus were selling the most during the first quarter of 2021 (as determined by net sells) were JPMorgan Chase & Co. (JPM, Financial), Apple Inc. (AAPL, Financial), Bank of America Corp. (BAC, Financial), American Express Co. (AXP, Financial) and The Walt Disney Co. (DIS, Financial).
JPMorgan Chas
By assets, JPMorgan Chase (JPM, Financial) is the largest bank in the U.S. and the sixth-largest bank in the world. Based in New York, the investment banking company offers a full range of traditional and investment banking services to individual and corporate clients worldwide.
During the quarter, six gurus bought shares of JPMorgan while 25 sold the stock, resulting in 19 net sells. At the quarter’s end, the stock was held by 32 gurus.
Dodge & Cox reduced its investment in JPMorgan by 90.13%, while Andreas Halvorsen (Trades, Portfolio) cut 89.66%. Steven Cohen (Trades, Portfolio) and Mark Hillman (Trades, Portfolio) sold out of the stock.
During the quarter, the stock traded for an average price of $143.83. On June 4, shares traded around $166.25 with a 52-week range of $90.77 to $167.44. The GuruFocus Value chart rates the stock as modestly overvalued.
In the first half of 2020, JPMorgan had set aside approximately $15.7 billion for loan losses. However, most of those losses never materialized. After releasing $5.2 billion of its loan loss reserves back onto its balance sheet during the first quarter, the bank has now reversed more than half of its Covid-19 loan loss reserves to date. Like other U.S. banks, JPMorgan continues to see declines in net interest income due to low interest rates.
With its traditional source of income drying up, analysts surveyed by Morningstar are predicting revenue to be $12.0 billion in 2021 and $12.1 billion in 2022. In terms of earnings per share, the estimates are $12.99 for 2021 and $11.84 for 2022.
Apple
Based in Cupertino, California, Apple (AAPL, Financial) is one of the Big Four technology companies, with iconic products such as the iPhone, AirPods, MacBook and Apple Watch. More recently, as its products begin to reach higher market saturation, it is seeking to increase its software-as-a-service offerings.
During the quarter, seven gurus bought shares of Apple while 24 sold the stock, resulting in 17 net sells. At the quarter’s end, the stock was held by 35 gurus.
Caxton Associates (Trades, Portfolio) cut its holding in the stock by 91.7%, while Catherine Wood (Trades, Portfolio) trimmed 35.07%. Wallace Weitz (Trades, Portfolio) and Bill Gates (Trades, Portfolio) sold out of the stock.
During the quarter, the stock traded for an average price of $128.47. On June 4, shares traded around $125.96 with a 52-week range of $80.19 to $145.09. The GF Value chart rates the stock as significantly overvalued.
Despite already being a mature company, Apple is continuing to innovate, producing attractive new products and expanding its subscription-based services. In the first half of fiscal 2021, the company’s services segment contributed 16% of revenue. Its switch to internally designed CPUs is also a positive sign. On the other hand, the sheer size of the company means it has limited potential to make millionaires out of new investors, and the slowdown of the work-from-home trend could potentially drive multiples reduction.
Nevertheless, the company still seems to be poised for growth, with Morningstar analysts predicting revenue of $354.0 billion in full fiscal 2021 and $363.8 billion in fiscal 2022. Earnings per share are estimated at $5.12 in fiscal 2021 and $5.15 in fiscal 2022.
Bank of America
Bank of America (BAC, Financial) is a U.S. global bank major headquartered in North Carolina. With approximately $2.61 trillion in total assets, it provides a wide range of traditional, corporate and investment banking services and other financial services.
During the quarter, nine gurus bought shares of Bank of America while 24 sold the stock, resulting in 15 net sells. At the quarter’s end, the stock was held by 37 gurus.
Jim Simons (Trades, Portfolio)’ firm reduced its holding in the stock by 79.61%. Bruce Berkowitz (Trades, Portfolio), Scott Black (Trades, Portfolio), Mark Hillman (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio) and Steven Romick (Trades, Portfolio) sold out of the stock.
During the quarter, the stock traded for an average price of $34.49. On June 4, shares traded around $43.22 with a 52-week range of $22.39 to $43.49. The GF Value chart rates the stock as significantly overvalued.
Bank of America currently trades with a price-earnings ratio of 18.56, which is above its median historical price-earnings ratio of 12.46. Given the continued low interest rate environment and the lack of any clear positive factors that could drive multiples expansion, many investors are thus cautious about this stock.
On the earnings forecast front, Morningstar analysts are expecting the company to report revenue of approximately $87.2 billion for 2021 and $90.4 billion in 2022, while earnings per share are expected to be $2.93 in 2021 and $2.98 in 2022.
American Express
American Express (AXP, Financial) is a financial services company headquartered in New York City. It is one of the largest and most well-known providers of credit cards, charge cards, gift cards and other financial payment products for consumers and merchants in the U.S.
During the quarter, three gurus bought shares of American Express while 18 sold the stock, resulting in 15 net sells. At the quarter’s end, the stock was held by 23 gurus.
Lee Ainslie (Trades, Portfolio) reduced his firm’s position in the stock by 99.68%, while Paul Tudor Jones (Trades, Portfolio) cut 86.02%. John Hussman (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio) sold out of the stock.
During the quarter, the stock traded for an average price of $132.09. On June 4, shares traded around $164.55 with a 52-week range of $89.11 to $165.73. The GF Value chart rates the stock as significantly overvalued.
American Express had a rough 2020, with fourth-quarter results missing on the revenue front even as they beat analyst estimates of earnings per share. Revenue showed sharp year-over-year declines in the customer service, commercial services and merchant and network services segments. American Express now guides to hit its original 2020 guidance by 2022.
According to data from Morningstar analysts, revenue is expected to hit $39.3 billion for 2021 and $44.0 billion for 2022. Earnings per share are predicted to come in at $7.22 in 2021 and $8.90 in 2022.
Walt Disney
Walt Disney (DIS, Financial) is an iconic mass media company and one of the largest producers of entertainment in the U.S. Based in Los Angeles, the company produces movies and shows, owns and operates theme parks and provides streaming services such as ESPN+, Hulu and Disney+.
During the quarter, 11 gurus bought shares of Disney while 23sold the stock, resulting in 12 net sells. At the quarter’s end, the stock was held by 34 gurus.
Joel Greenblatt (Trades, Portfolio)’s firm sold 52.49% of its investment in the stock, while David Tepper (Trades, Portfolio) cut 53.69%. Julian Robertson (Trades, Portfolio), Stanley Druckenmiller (Trades, Portfolio), Andreas Halvorsen (Trades, Portfolio) and Steven Cohen (Trades, Portfolio) sold out of the stock.
During the quarter, the stock traded for an average price of $184.47. On June 4, shares traded around $177.29 with a 52-week range of $108.02 to $203.02. The GF Value chart rates the stock as significantly overvalued.
The strength of Disney’s business model comes from the popularity of its content model as well as the linkage of its film business, theme parks, cruises and, more recently, its direct-to-consumer streaming services. Virtually all of its businesses suffered huge adverse impacts from the Covid-19 pandemic, with operating income down 67% year over year in the first quarter of 2021. While the company looks set to see demand for its products recover, it has also done a lot of restructuring over the past year, which may be part of what is putting some investors off the name.
Analysts surveyed by Morningstar seem confident that the company’s efforts to spice up its business model will bear fruit, especially as the pandemic begins to die down. Revenue is predicted to come in at $67.1 billion in fiscal 2021 and $85.1 billion in fiscal 2022, while earnings per share are estimated to be 88 cents in 2021 and $4.96 in 2022.
