Because they are so widely held, the 20 largest U.S. stocks deserve special attention. Here are my buy/hold/avoid ratings on each.
Microsoft (MSFT), with $1.06 trillion market value, tops the ladder. At more than 10 times book value (corporate net worth per share) and almost 9 times revenue, the stock is expensive. Avoid.
Apple (AAPL, $984 billion market cap): The aristocrat of apps has slowed to single-digit growth, but I believe the slowdown is temporary. Buy.
Amazon.com (AMZN, $887 billion market cap): Great company, but the valuation—74 times earnings and 16 times book value—is too rich for my blood. Avoid.
Alphabet (GOOGL, $853 billion market cap) seems to me to be one of the most innovative companies in the world. It has some problems with policing the contest of You Tube, but remains the sultan of search. Buy.
Facebook (FB, $542 billion market cap) faces intense scrutiny over its privacy practices and sales of personal data. I think this will crimp its growth, which has already slowed from the previous blistering pace. Avoid.
Berkshire Hathaway (BRK.A, $511 billion market cap) is run by possibly the world’s greatest investment genius, Warren Buffett. At 1.3 times book value, I think Berkshire is a Buy.
Visa (V, $390 billion market cap): The stock has appreciated steadily for the past decade, but has reached such heights (13 times book value, almost 18 times revenue) that I rate it Avoid.
J.P. Morgan Chase (JPM, $380 billion market cap): With a dividend yield close to 3%, a history of dividend increases, and plenty to room to hike dividends further, I like this stock for conservative investors. Buy.
Johnson & Johnson (JNJ, $347 billion market cap): For years, I’ve held this stock for dividend-oriented investors. But I’m nervous that growth has slowed to a crawl. With trepidation, I will still call it a Buy.
Walmart (WMT, $333 billion market cap), the master of cost cutting, usually thrives when the economy is slow. I don’t know when the next recession comes, but it’s been ten years since the last one. And the company is doing well in e-commerce. Buy.
General Electric (GE, $311 billion market cap) has endured unrelenting scorn. The contrarian in me wants to embrace it, but recent losses have been too hideous to ignore. Avoid.
Procter & Gamble (PG, $306 billion market cap). It’s hard to find steadier businesses than detergent, soap and razors. But how much are you willing to pay for steadiness? A multiple of 25 times next year’s earnings is too much, I’d say. Avoid.
ExxonMobil (XOM, $305 billion market cap) once headed this list. Now it’s 13th, which shows how far down the energy industry has fallen. The stock sells for about 10 times what Exxon makes in a good year. Buy.
AT&T (T, $277 billion market cap) is notable mainly for its dividend yield of 5.3% The stock price is about where it was five years ago. For dividend-hungry investors—and only for them—I rate it a Buy.
Bank of America (BAC, $275 billion market cap). Profitability hasn’t been great since 2006, and revenue per share is stagnant. I like it that the stock’s cheap, but I’m not excited. Avoid.
Mastercard (MA, $275 billion market cap): My firm owns it because several of my past and present colleagues love it. But I have reservations. Profitability is off the charts, but the valuation is stratospheric. Hold.
Verizon Communications (VZ, $259 billion market cap): Like its big telecom rival AT&T, Verizon is a dividend play. The yield is 4%. I prefer AT&T because its debt-to-equity ratio is lower. Avoid.
Home Depot (HD, $246 billion market cap): The company’s book value (net worth) turned negative last fiscal year. It needs to do some balance-sheet repair, in my view. Avoid.
Walt Disney (DIS, $238 billion market cap) excites me because I have high hopes for its soon-to-be-launched streaming service, and enduring respect for its theme parks. Buy.
Chevron (CVX, $236 billion market cap) shares have made no net progress in six years. The stock is deeply out of favor and cheap. It yields 3.8% in dividends. Buy.
Past Results
This is the 16th set of ratings I’ve issued on the largest stocks. My record in this series is positive, but just barely. My buys have averaged an 11.55% return in the year following publication. The neutral or hold ratings have averaged 11.28% and my sells 11.20%
Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.
Disclosure: I own Apple, Alphabet, Berkshire Hathaway, Walmart, Mastercard and Walt Disney for most of my clients and personally. For one or more clients, I own J.PMorgan, Johnson & Johnson, ExxonMobil, AT&T and Chevron.
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John Dorfman is chairman of Dorfman Value Investments LLC. His firm or clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.
