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Here's the 1 Warren Buffett Stock I'd Sell Right Now With Zero Hesitation

Motley Fool - Fri Oct 13, 2023

Warren Buffett stands in a league of his own, and his track record speaks for itself. The wisdom he has shared over the decades is priceless.

I like Buffett's investing philosophy. His goal of buying "a wonderful company at a fair price" makes a lot of sense to me. Quite a few of the wonderful companies in which Berkshire Hathaway(NYSE: BRK.A)(NYSE: BRK.B) owns stakes are also in my portfolio (as is Berkshire itself). But I'm not a fan of every stock Buffett has bought throughout the years.

Buffett stocks I'm not enthusiastic about

There are several stocks in Berkshire's portfolio right now that I'm not enthusiastic about. Buffett might have had good reasons for buying them initially, but they have significant downsides now.

Hewlett Packard(NYSE: HPQ) stands out as a great example (or perhaps not-so-great would be more accurate). The technology giant's revenue plunged nearly 22% year over year in the second quarter of 2023.

HP's shares seem attractively valued with a forward earnings multiple of only around 7.4x. The company also offers a nice dividend, with a yield of nearly 4%. However, HP isn't headed in the right direction. Buffett seems to recognize this, considering his recent dumping of much of Berkshire's position in the stock.

Snowflake(NYSE: SNOW) is practically the mirror image of HP. The data cloud company reported strong year-over-year revenue growth of 37% in Q2. It has a jaw-dropping net revenue retention rate of 142%.

The problem for Snowflake, though, is its price. Shares currently trade at nearly 182x forward earnings and more than 21x trailing-12-month sales. As impressive as the company's growth is, it's not enough to justify such a frothy valuation.

I'd sell it in a New York minute

While I'm not enamored with HP or Snowflake, there's one Buffett stock that I'd sell right now with zero hesitation. That dubious distinction belongs to Activision Blizzard(NASDAQ: ATVI).

Don't get me wrong: I like Activision Blizzard's underlying business. The gaming developer's revenue jumped 34% year over year in Q2. Its earnings per share soared more than 80%, and the company had a record quarter for net bookings.

I also think that Activision Blizzard's forward price-to-earnings ratio of 22x isn't anything to be concerned about. So why sell the stock? The simple answer is Microsoft(NASDAQ: MSFT).

In January 2022, Microsoft announced plans to acquire Activision Blizzard in an all-cash transaction. There have been plenty of bumps in the road with those plans. However, with Microsoft's proposed restructuring of the deal a couple of months ago, it looks more likely than ever that the transaction will go through.

Activision Blizzard's share price currently stands above $94. That's really, really close to Microsoft's offer price of $95 per share. If the acquisition closes as I expect it will, the upside potential for owning Activision stock is minimal. If the deal falls through somehow, the stock would almost certainly sink.

The bottom line is that there's not much of a win either way with Activision Blizzard. If I owned it, I'd sell it in a New York minute.

What is Buffett doing with Activision Blizzard?

Buffett and his team have trimmed Berkshire's position in Activision Blizzard significantly. In the second quarter of 2022, the conglomerate owned around 68.4 million shares. As of July 17, 2023, the total was less than 14.7 million shares. I think that's still nearly 14.7 million shares that are too many to own.

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Keith Speights has positions in Berkshire Hathaway and Microsoft. The Motley Fool has positions in and recommends Activision Blizzard, Berkshire Hathaway, HP, Microsoft, and Snowflake. The Motley Fool has a disclosure policy.

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