Buy Hold Sell: 6 of Warren Buffett and Cathie Wood's top stocks

Buy Hold Sell

Livewire Markets

You may not bet billions on stocks like Buffett, or be hard as (Cathie) Wood to ride the Tesla rollercoaster, but these global investors sure know a thing or two when it comes to picking stocks. 

While Berkshire Hathaway existed long before Buffett, it was taken over by the Oracle of Omaha in 1964. Since 1965, the company has produced an annual return of 20%, compared to the S&P 500's 10.2% (as of the end of 2020). Meantime, Wood's ARK Innovation ETF has generated annualised returns of more than 34% (as of the end of June 2021)

However, as has been well documented by the press, both Buffett and Wood have underperformed of late. As a wise investor once told me, even the world's best can have their bad days (or years). 

In this episode of Buy Hold Sell, we invited Frazis Capital's Michael Frazis and Holon Global Investments Heath Behncke to put these global investment leaders' top stocks on the chopping block. 

And there is certainly no denying the investor (and their picks) which they prefer. 

Note: This episode was filmed on Wednesday 29th September 2021. You can watch, listen or read an edited transcript below.

Edited Transcript

Ally SelbyHello and welcome to Livewire's Buy Hold Sell. I'm Ally Selby, and today we'll be putting the portfolios of the world's most famous investors on the chopping block. We'll be taking a look at three of the top holdings from Warren Buffett and three of Cathie Wood's top stocks. And to do that, we're joined by Michael Frazis from Frazis Capital and Heath Behncke from Holon.

First up, we're going to take a look at some of Cathie Wood's top stocks. We've got Tesla, which truly needs no introduction. Its share price has risen around 825% over the past 18 months. Michael, I might start on you. Is it a buy, hold or sell?

Tesla (NASDAQ: TSLA) 

Michael Frazis (HOLD): This is a long-term hold for us. We're extremely optimistic about the prospects of the company. There's been a huge multiple increase. So if you think about that gain over the last two years, it was so explosive. The EV-to-EBITDA multiple went from 15 times to 60 times. If you look at EV to sales it's probably three times to 12 times. I don't think that's going to happen again, but I'm very optimistic about the long term. So it's definitely a hold.

Ally Selby: Heath, over to you. It's currently trading on a forward P/E of around 228 times. Is it a buy, hold or sell for you?

Heath Behncke (BUY): Yeah, look for us, Ally, Tesla's still a buy. We're actually about to release a 130-page report on this, where we've actually gone through and talked about the transformation of energy. Which really, when you think about it, it's probably one of the largest conversations, if not the largest conversation, on the planet. And they're leading the charge. So we think he's going to continue to execute at scale as we've never seen before. So, we're very optimistic, notwithstanding the rally it essentially had.

Coinbase Global (NASDAQ: COIN)

Ally Selby: Okay, next up we have Coinbase Global, which is a global cryptocurrency exchange. Heath, I'll stay with you. Is it a buy, hold or sell?

Heath Behncke (BUY): Another one in our portfolio. So this is a buy for us. So Coinbase has really got the trust in the space around onboarding those who are particularly focused on Web 3.0 and crypto. So we think there's a big, bright future. The listing's really helped with the public profile and we're going to probably see the first Google or Facebook of the internet of value. So, we think it's a very exciting time.

Ally Selby: Michael, over to you. It has around 68 million users and it recently reported around $2 billion in second-quarter revenue. Is it a buy, hold or sell for you?

Michael Frazis (BUY): This is definitely a buy for us. I mean, it's one of the fastest-growing, cheapest companies in indices at the moment. And I think there's a real advantage to the fact they're the most trusted. If you're setting up a fund or you just want to make sure your crypto holdings are somewhere where they're most secure, Coinbase has by far become the preferred counter party. They'll be the biggest and best, and they'll be able to maintain that as well. 

Square Inc (NYSE: SQ)

Ally Selby: Next up, we have a company that has recently made headlines down under. It's Square. I'll stay with you, Michael. Is it a buy, hold or sell?

Michael Frazis (SELL): Look, this is a sell for us. We've been long-term shareholders, but we have been reducing it. So I have to stay aligned with what we're actually doing in the market. And the reason for that is they've done a major acquisition. It's dilutive on an EV to sales basis or EV to gross profit basis. Acquisitions of this size and scale are extremely difficult to execute. There's a question mark over that. And I think over the coming quarters, it will become increasingly clear that this has been a very dilutive acquisition. So for those reasons, we are selling out our position just a little bit, but we will remain long-term shareholders.

Ally Selby: Heath, over to you. It has a market cap of around $119 billion and is currently trading on a forward P/E of around 132 times. Is it a buy, hold or sell?

Heath Behncke (HOLD): We're Afterpay shareholders, and we've recently actually sold that position in the portfolio. And this for us is a hold. We're doing the work at the moment. We share Michael's concerns around the indigestion when it comes to a major acquisition like Afterpay. But we're really doing a lot of work to understand what the integrated proposition could solve. It looks exciting, could happen, but we'll just see. So for us, it's a hold.

Apple (NASDAQ: AAPL)

Ally Selby: Moving on to some of the Oracle of Omaha's picks. First up, we have his biggest holding and one of the biggest companies in the world. Actually, I think it's the biggest company in the world. It's Apple. It has a whopping $2.4 trillion valuation, trading on a forward P/E of around 26 times though. Heath, staying on you, is it a buy, hold or sell?

Heath Behncke (HOLD): This would be a hold for us. We think Apple's a great company and got a great future. The transformation that's going on to subscription-based service revenue is game-changing. You see that. But it's big. It's a very big company and it needs some big game-changing things to actually help get those earnings going along. So for us, it's a hold.

Ally Selby: Michael, over to you, I think Warren Buffett's position in it is worth around $130 billion. Is it a buy, hold or sell for you?

Michael Frazis (SELL): For us, it's probably a sell. And we were shareholders of Apple almost 10 years ago and held it for quite a long time. In the last three years, sales have basically been flat. Most of the price increase, and it has been a phenomenal price increase, has been multiple appreciation, going from seven times EBITDA, which was insanely cheap for the quality of the company, to 20 times. I don't think that will happen again. And I think if you want the exposure to Apple, you're probably better off just getting it through the NASDAQ 100.

Coca-Cola (NYSE: KO)

Ally Selby: Next up, we have one of the world's most recognisable brands, it's Coca-Cola. Michael, staying on you, is it a buy, hold or sell?

Michael Frazis (SELL): Look, our framework of true love and explosive growth would have been perfect for Coca-Cola many, many years ago. Now it's clearly post-growth, it's flat, it's 20 times EBITDA. And also it's got the headwind of people who don't really want sugary drinks. And of course, they're going to buy new things and launch new products and try and stay on-trend, but it's clearly post-growth and there's still risk in equities. This company still dropped 35-40% in March 2020. So if you're going to take the equity risk, I think you need to be in faster-growing companies with high return opportunities. So sell.

Ally Selby: It actually underperformed the S&P 500 over the past 12 months. I think it returned around 8%. Heath, over to you. Is it a buy, hold or sell?

Heath Behncke (SELL): Coca-Cola is a sell. It's very typical of a lot of companies out there, ex-growth. Even looks like it has geared up the balance sheet pretty significantly over the last decade. If you look at EPS, it has gone nowhere. Dividend payout ratios have gone up very substantially, and then this is all in the face of changing consumer preferences. So it's very indicative of an old-world company that, as Michael's indicating, went through a very strong growth phase many years ago, but the game has really changed quite significantly in that way. It's like a bond proxy. A lot of people actually look at it that way. We think that is even a risk, in that regard, in terms of sustainability around some of the dividends that they're actually paying out.

Bank of America (NYSE: BAC)

Ally Selby: Last but not least, we have another of Buffett's top bets. It's Bank of America. Its share price has surprisingly risen around 80% over the past 12 months. Heath, it's the last one for you. Is it a buy, hold or sell?

Heath Behncke (SELL): Sell. Every bank in the world is a sell. As we saw here in March 2020, how the bank sector was down very markedly and the banks have got exceedingly large challenges going forward. It is clear that Buffett picked this up pretty cheaply. He bailed out the bank and in many ways and got a great deal. But it is a very difficult future ahead.

Ally Selby: As Heath mentioned it is likely to be a difficult future ahead for many of the banks of the world. Michael, over to you. Is it a buy, hold or sell?

Michael Frazis (SELL): For us, it is a sell. I was looking at its performance over the last 10 years. It's been a strong performer, but I guess 10 years ago is 2011, so a couple of years after the GFC. So it kind of makes sense. And if you look at what drove that, the price to book ratio went from 0.25 times to 1.25 times. So it effectively went up five times and that was most of the return. Even though it has been a strong performer in the past, it is going to be very hard for them to continue to grow. If you're going to take those significant equity risks, which you are in financials, then I think you need to be in higher returning opportunities.

Ally Selby: Well, it seems our fundies aren't the biggest fans of Buffett's major bets, but we'd love to know what you think. Let us know what stocks you like the most from this episode in the comments section below. Remember to give this episode a like and subscribe to our YouTube channel, we're adding new content every week.

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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.

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