The largest stocks dominate the headlines, and investors’ wallets.
So even though I’m fond of off-the-beaten-path stocks, once a year I give my buy-or-avoid ratings on the 20 largest stocks. Today’s the day.
Apple Inc. (AAPL, Financial) ($2.4 trillion market value). Buy. The company’s iPhones and Mac computers have a loyal following. Having $48 billion in cash and marketable securities helps, too.
MicrosoftCorp. (MSFT, Financial) ($1.8 trillion). Avoid. It’s a fine company, but the stock was way overpriced a year ago, in my opinion, and is still somewhat overpriced now.
Alphabet Inc. (GOOGL, Financial) ($1.3 trillion). Buy. The most innovative American company, in my view. It has increased its earnings by 15% a year for the past decade.
Amazon.comInc. (AMZN, Financial) ($1.2 trillion). Avoid. In the past few quarters, revenue growth slowed and earnings fell. Yet the stock still sells for 101 times recent earnings.
Tesla Inc. (TSLA, Financial) ($863 billion). Avoid. It’s an exciting company and Elon Musk is a charismatic guy, but in my opinion the stock price (at 14 times revenue) is just too high.
Berkshire Hathaway Inc. (BRK.B, Financial) ($591 billion). Buy. Under CEO
Warren Buffett (Trades, Portfolio), Berkshire owns dozens of companies, and has $327 billion in investments. In my book, no one beats Buffett.
UnitedHealth GroupInc. (UNH, Financial) ($480 billion). Neutral. I’m lukewarm. But if the widely-predicted recession is at hand, health care stocks are likely a decent place to hide.
Johnson & Johnson (JNJ, Financial) ($438 billion). Buy. This health care conglomerate is a notch cheaper than UnitedHealth, and has a better return on total capital (17% versus 10%).
Visa Inc. (V, Financial) ($388 billion). Avoid. Visa’s earnings growth has been admirable. But it is expensive at 14 times revenue and untimely if a recession is at hand.
Meta PlatformsInc. (META, Financial) ($377 billion). Avoid. Facebook, its flagship product, seems to be losing cachet among young people. Earnings in the June quarter were down from a year ago.
Exxon Mobil Corp. (XOM, Financial) ($357 billion). Buy. Exxon shares were up 45% in the past year while most stocks were down. I think the oil industry revival will continue.
Walmart Inc. (WMT, Financial) ($353 billion). Avoid. I’m torn, because Walmart usually holds up well in recessions, but 25 times recent earnings is more than I want to pay.
Procter & Gamble Co. (PG, Financial) ($323 billion). Avoid. Products like detergent and razor blades are staples; people buy them even in tough times, but I think investors overpay for the presumptive steadiness.
JPMorgan Chase & Co. (JPM, Financial) ($320 billion). Buy. This blue chip has fallen more than 34% in the past year. Banks have their troubles, but at nine times earnings I think it’s a bargain.
Nvidia Corp. (NVDA, Financial) ($312 billion). Avoid. The Federal Reserve’s campaign of raising interest rates is poison to high-multiple stocks, and Nvidia’s multiple is 41 times earnings.
Eli Lilly and Co. (LLY, Financial) ($296 billion). Avoid. Lilly’s 10-year revenue growth figure is unimpressive at 3.3%, yet the stock still commands 50 times earnings.
Mastercard Inc. (MA, Financial) ($284 billion). Avoid. Colleagues talked me into buying Mastercard a few years ago and we did well. But 13 times revenue? That’s dangerously high.
Chevron Corp. (CVX, Financial) ($283 billion). Buy. After six years in the wilderness, the oil industry is making strong profits again. Also, Chevron sports a 3.8% dividend yield.
Home Depot Inc. (HD, Financial) ($277 billion). Buy. I’ve had Home Depot as an “avoid” the past four years. But with the stock down to where it was eight years ago, I think it’s a value.
Bank of America Corp. (BAC, Financial) ($255 billion). Buy. The Fed’s raising short-term interest rates hurt banks. Nonetheless, at 9 times earnings, I think it is cheap enough to be a buy.
The past year has been tough for almost all stocks, and the 20 largest are no exception. A year ago, I slapped an “avoid” rating on 14 large stocks. They declined an average of 23.7%. The six stocks I recommended buying were down an average of “only” 17.1%.
Long term, my “buys” have beaten my “avoids” by the narrowest of margins, 11.4% to 11.2%. (The long-term figure covers 18 columns about the largest stocks written from 2001 through 2021.)
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].