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Warren Buffett and Jamie Dimon join forces to convince CEOs to end quarterly profit forecasts

Warren Buffett and Jamie Dimon join forces to convince CEOs to end quarterly profit forecasts

Warren Buffett and Jamie Dimon have teamed up to once again call for the end to quarterly earnings guidance by companies.

Dimon, the chairman of the Business Roundtable, said the group of CEOs has thrown its support behind companies backing away from the practice.

Executives often feel pressure to make quarterly forecasts, but “it can often put a company in a position where management from the CEO down feels obligated to deliver earnings and therefore may do things that they wouldn’t otherwise have done,” Dimon said in a rare joint interview with Buffett airing Thursday on CNBC’s Squawk Box.

“Quarterly earnings: they’re a function of the weather, commodity prices, volumes, competitor pricing. And you don’t really control that as CEO,” he added. “Sometimes you’re just like the cork in the ocean, but do the right thing anyway and you’re going to be fine in the long run.”

“You should build the systems you need, you should do the R&D that you need and explain it to your shareholders and your board. Of course, some of the CEOs will say it’s the sell side, that we put pressure, but what I’m trying to say to people: be free to drop it.”

Dimon, the chairman and CEO of J. P. Morgan Chase, and Buffett, chairman and CEO of Berkshire Hathaway, wrote about the group’s endorsement in an opinion column in The Wall Street Journal.

It is a long-simmering debate but one that has gotten more attention in an era when activist investors are more vocal about pushing companies to deliver on their promises.

Companies forecast sales and profit numbers to Wall Street analysts, who use it to produce research and stock recommendations for investors. Missing “the number” can often result in big, short-term stock moves. Making a forecast, and then hitting the target, are seen as a way to manage expectations and eliminate volatility.

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Warren Buffett Is Buying These Stocks, Should You?

No one person’s commentary about the stock market commands quite as much attention as that of Warren Buffett. Of course, the “Oracle of Omaha” has certainly earned that level of respect, amassing billions of dollars over decades of meticulous investing. But this also means that when Buffett’s Berkshire Hathaway BRK.B reports its latest holdings, investors often move quickly to copy its recent moves.

Berkshire filed its 13F for the fourth quarter on Wednesday, providing the would-be Buffetts of the world with an update on the conglomerate’s latest adjustments and giving Wall Street the closest thing to a look inside the mind of the billionaire investor that it could possibly have.

Berkshire Hathaway’s U.S. long stock portfolio holds positions in 45 individual stocks, with the five-largest of those positions accounting for roughly 62% of its total value. Some of the company’s larger stakes include Wells Fargo WFC, Bank of American BAC, and Kraft Heinz KHC.

During the fourth quarter, the portfolio’s value increased about 8%, reaching a whopping $191 billion on the back of one major new addition and several position increases. Should you be following in Buffett’s footsteps by buying the same stocks? Let’s take a closer look.

Apple Inc. AAPL

Berkshire Hathaway increased its stake in Apple by about 23% during the quarter. The technology behemoth is now the portfolio’s largest holding at 14.63% of its total value. Berkshire first purchased AAPL in Jan. 2016, and when asked to explain the move at the time, Buffet responded by simply saying, “Because I liked it.”

Apple is currently holding a Zacks Rank #3 (Hold) and has been hammered by the recent market sell-off, which occurred just days after the company reported disappointing iPhone sales during the holiday quarter. Nevertheless, the stock is sporting a “B” grade for Value in our Style Scores system, and the fact that it presents such a rare value opportunity in the tech sector probably explains Buffett’s position.

Shares of Apple are trading at just 15x forward earnings, coming in slightly below the market-wide average. Meanwhile, the stock has a PEG of 1.26, so investors are getting a decent price for its growth aspirations as well. Apple’s P/S of 3.55 is a bit stretched, but the company remains a cash cow and is generating more than $11.30 in cash per share right now, significantly outpacing its industry peers.

Apple remains a strong buy-and-hold option for investors focusing on financial security and value. The firm’s dominant grip on the consumer tech industry might be slipping a bit, but Apple should remain a titan for years to come.

Bank of New York Mellon Corporation BK

Buffett and Berkshire took the bulk of their position in BNY Mellon during the second quarter of 2012. Since then, the size of the holding has fluctuated a bit, including several small decreases in 2015 and two 50% increases in 2017. The conglomerate also upped its stake in BK by about 20% during the fourth quarter, buying a number of shares between $51 and $55.

BNY Mellon has performed basically in line with the market over the past year, moving a respectable 18% higher over that time. The stock is currently sporting a Zacks Rank #3 (Hold) and has an overall VGM grade of “D.”

Investors should not expect explosive earnings growth or consistent market-beating returns from BNY Mellon. But the stock is probably a decent option for investors looking to diversify their financial holdings with a sound asset servicing company.

Teva Pharmaceutical Industries TEVA

Berkshire surprised many investors with the revelation that it had taken a new stake in this struggling drugmaker during the fourth quarter. Its position is relatively small and accounts for just 0.9% of the portfolio’s value, but it led many on Wall Street to question whether Buffett could see something in the stock that others were missing.

The generic drug giant has faced significant headwinds lately, due in large part to lower U.S. generic drug prices and increased competition—causing management to take out massive loans to protect from its shrinking profit margins.

Berkshire could be well positioned to benefit from the company’s planned turnaround, but investors should note that Teva is currently holding a Zacks Rank #4 (Sell). Nevertheless, the Zacks Rank is only a one-to-three month indicator, and we know that Buffett likes to buy and hold his stocks well beyond that. Teva might be risky right now, but if the company can solve its debt crisis, it could bounce back over the next few years.

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Warren Buffett’s Best Advice on Successful Investing

Warren Buffett’s Best Advice on Successful Investing
Warren Buffett, Brian Moynihan Speak at Georgetown

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