When investors peruse Warren Buffett (Trades, Portfolio)âs portfolio for holdings at advantageous prices, a usual suspect is Kraft Heinz (KHC, Financial). The stock still trades a third below its price of one year ago, but it bounced from its three-year low toward the end of May, encouraged by the companyâs correction of misstated financial filings and promise of a return to âa path of normalization.â Since May 31, the shares have advanced 9.63%, and off a list of Buffett stocks at 52-week lows.
Meanwhile, a gravity-defying market has seen few stocks in particularly dire spots. But it has turned pessimistic on two that tout Buffettâs seal of approval: Bank of New York Mellon (BK, Financial) and Teva Pharmaceuticals (TEVA, Financial).
Bank of New York Melon has fallen to its lowest price since October 2016, closing at $43.95 Monday afternoon. Its slump of 22% over the past year also far exceeded the lackluster 2.4% average loss of its peers in the SPDR Financials ETF (XLF, Financial) for the same period. Its drop puts it in company with banks like Wells Fargo (WFC, Financial), another Buffett holding, which shed 17.3% in the past 12 months.
Yet the global financial institution has been improving its financial performance on a number of fronts. Return on equity and return on assets have both increased annually since 2013, except in 2018 when its return on assets remained flat from 2017 at 1.16%. Net interest margin rose each year since 2015 to 1.6% in 2018, as did revenue, which reached $15.99 billion. Since 2013, the bank has seen its annual net earnings grow to $4.27 billion in 2018.
Management informed investors of some problems in the first quarter, though. Weakness struck its investment services segment, where revenue dipped 5% from the prior year, and revenue in its investment management segment dropped 14%. Overall revenues decreased 7% to $3.9 billion, partially driven by asset management outflows and divestitures in 2018. The slowdown in revenue is set to continue for several quarters, Bank of New York Mellon CEO Charlie Sharf said in a statement, due to expectations for the yield curve.
Buffett welcomed the price declines of 2018 as chances to buy more Bank of New York Mellon stock at lower prices in each quarter. But he ended the streak in the first quarter, buying none. GuruFocus estimates his gain from the start of his position in 2010 when the price averaged $25 at around 3%.
Teva Pharmaceuticals (TEVA, Financial)
Shares of Teva Pharmaceuticals traded around $8.20 Tuesday afternoon, its lowest price since December 1999. Its 69% dive over the past year has vastly underperformed its sector, with the SPDR Health Care ETC (XLV, Financial) surging 8.01% year to date.
The Israel-based generic drugmaker struggled in 2018 as one of its branded drugs, Copaxone, faced a generic competitor. The loss of exclusivity, along with declines in its generics business, sent revenue for the year down 16% to $18.85 billion, the lowest the company has reported since 2012. Its net loss narrowed to $2.399 billion, or $2.35 per diluted share, from $16.52 billion, or $16.26 per diluted share, in 2017.
Challenges with Copaxone, its U.S. generics business and its respiratory products extending into the first quarter contributed to a 15% year-over-year decline in revenue to $4.295 billion. Its net loss for the quarter was $105 million, or 10 cents per diluted share, compared to $1.06 billion, or $1.03 per diluted share, in the first quarter a year earlier.
For the future, Teva is putting its hopes on two of its other branded drugs, Ajovy and Austedo, to grow revenue.
âBoth products continue to gain momentum since their initial launches and we are making the necessary investments to be able to bring them to markets outside of the U.S. as well as explore additional indications,â Teva CEO KĂ„re Schultz said in a first-quarter earnings statement.
Along with price, several of the companyâs valuation ratios have tumbled to significant lows. Its price-book ratio of 0.66 has touched a one-year low, while its price-sales ratio of 0.51 hovers near a 10-year low.
Buffett (or one of his portfolio managers, Ted Weschler and Todd Combs) has not found the situation attractive enough to buy in further of late. He started the position in the fourth quarter of 2017 when the price averaged $15, and boosted it in the two subsequent quarters at prices averaging $20. As of the March quarter, his holding spans 43,249,295 shares, which represent only 0.34% of his Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) portfolio. GuruFocus estimates that the holding is down by around 52.6% at Tuesdayâs closing price.
See Warren Buffett (Trades, Portfolio)âs portfolio here.
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