Warren Buffett’s stock-picking prowess is not foolproof. Over the years, he has lost $3.5 billion on Maine-based Dexter Shoe Co.…more than $2 billion on oil producer ConocoPhillips…and $444 million on UK supermarket chain Tesco PLC. This year, he said his holding company, Berkshire Hathaway, sold about one-third of its 81-million-share stake in IBM after losing confidence in the company. But despite those setbacks, Buffett’s long-term performance is legendary. Over the past 52 years, the stock price of Berkshire Hathaway has gained an annualized 20.8%, about double the 9.7% annualized gain for the Standard & Poor’s 500 stock index.

Does that mean that individual investors would be smart to just invest in the same 47 individual stocks that comprise the company’s $150 billion portfolio? No. This may not be the best time to invest in some of those stocks…some may be too volatile for your tastes…and some may not fit in with the mix of investments that you already have in your portfolio.

Bottom Line Personal asked stock ­expert Charles Sizemore to evaluate Buffett’s portfolio and determine which holdings look most attractive for small investors now and which to avoid…

PICKING AND CHOOSING

In early April, I examined the names in Berkshire’s most recently published portfolio (as of December 31, 2016) and focused on its highest-conviction holdings, the top 20 stocks in which Berkshire has invested a combined 93% of the assets in its stock portfolio. I reviewed each company’s valuation and balance sheet strength as well as the potential for growth in revenues and profitability. For each stock below, I have indicated what percent it represented of Berkshire’s portfolio in December.

CONSIDER BUYING

Kraft Heinz Co. (KHC)—19.2% of the Berkshire Hathaway portfolio. The fifth-largest food company in the world has eight brands that earn more than $1 billion dollars each in annual revenue. But Buffett’s huge position is about more than just dependable cash flow. The company is poised to keep growing through bold acquisitions, using its international network to launch smaller brands on a global scale.

Wells Fargo & Co. (WFC)—­­­17.9%. Buffett has continued to maintain confidence in the company and a massive position in the stock even though it was hit by a reputation-destroying scandal involving more than two million unauthorized accounts it created. While most bank stocks are too expensive to buy now after having soared in the past year, the scandal has kept Wells Fargo’s valuation reasonable.

Coca-Cola Co. (KO)—11.2%. Berkshire has owned the stock for more than a quarter century. Although soda sales will continue to weaken amid health concerns, the stock is a smart buy now. Investors receive an attractive dividend, recently yielding 3.3%, and management has shrewdly diversified into healthier beverages including fruit juices, bottled water, ready-to-drink coffee and sports drinks.

Phillips 66 (PSX)—4.7%. Buffett increased Berkshire’s investment last year by about 30% amid sunken prices for energy and for shares of the company, which specializes in transporting and refining rather than producing oil and natural gas. Guaranteed long-term contracts mean Phillips 66 can remain profitable even when oil prices fall, and over the next decade, it will benefit as fracking operations increase US production.

Apple (AAPL)—4.5%. Buffett more than doubled Berkshire’s position in January. The stock continues to be undervalued because investors worry that the company won’t produce another blockbuster product like the iPhone. But Buffett sees a business with a $240 billion cash hoard that will reward investors with dividends and share buybacks for years. And just selling upgraded versions of the iPhone and ancillary services such as iTunes and iCloud allows Apple to earn revenue of $50 billion per quarter.

Delta Air Lines (DAL)—2%…Southwest Airlines (LUV)—1.5%…American Airlines Group (AAL)—1.4%…United Continental Holdings (UAL)—1.4%. Passengers may grumble about airlines, but after decades of losses, mergers and bankruptcies, this has become a much less volatile, more profitable business for investors. In the last quarter of 2016, Buffett made a broad bet on the airline industry, investing more than $4 billion in these companies, which control more than 80% of the domestic market. United Continental stock has the most attractive valuation.

DaVita (DVA)—1.7%. The leading provider of kidney dialysis services in the US has more than 2,300 outpatient centers and can thrive no matter what kind of health-care insurance overhaul we have in the future. That’s thanks to a few powerful demographic trends—the aging population and the growing prevalence of kidney disease.

General Motors Co. (GM)—1.2%. The stock is cheap because investors have bad memories of GM’s 2009 bankruptcy. But management has greatly ­improved the quality and design of GM’s cars, SUVs and trucks. The dividend recently yielded 4.5%.

USG Corp. (USG)—0.76%. Buffett owns 27% of the outstanding shares in USG, a leading manufacturer of ­residential and commercial construction materials in the US. Drywall isn’t very exciting even in a bullish housing market, but there’s continued speculation that Buffett could take the entire company private at a substantial premium to the current stock price.

AVOID

International Business Machines (IBM)—9.1%. Since 2011, Buffett has made a huge bet on Big Blue’s ability to reinvent itself, but the company has suffered 20 consecutive quarters of falling sales. IBM’s legacy business running ­giant mainframe computers is dying, and its move into more profitable areas of tech such as cloud computing and storage has been slowed by powerful competitors such as Amazon and Microsoft.

American Express Co. (AXP)—7.6%. Its credit cards no longer carry the cachet they once did…Amex suffered its second consecutive fiscal year of declining revenue in 2016…and it has lost major cobranding deals with Costco, Fidelity and JetBlue.

Charter Communications (CHTR)—1.8%. The second-largest cable operator serves 50 million homes and businesses and has completed a $55 billion merger with Time Warner Cable. However, more and more cable subscribers will opt to “cut the cord” and obtain their programming for less or even for free over the Internet.

US Bancorp (USB)—3%…Goldman Sachs (GS)—1.8%…Bank of New York Mellon (BK)—0.69%. These financial-services companies are well-managed and dominate their particular niches. The problem is overvaluation. The stocks soared in 2016 in anticipation of higher interest rates and ­industry-friendly policies from the Trump administration, such as tax reform and reduced government ­regulations.

Moody’s Corp. (MCO)—1.7%. This major credit-rating agency stumbled badly in the 2007–2009 financial crisis when it gave passing grades to ­ultra-risky bond offerings. The company has resolved most of its pending civil claims with the Justice Department and state governments. But the company has only modest growth prospects.

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