In the third quarter of 2021, which ended on Sept. 30, U.S. stock markets kept marching steadily higher as the combination of easy monetary policy, economic recovery and inflation made stocks arguably the safest asset class to invest in. The U.S. Federal Reserve remained dovish throughout the quarter, with Fed Chairman Jerome Powell only beginning to consider winding down bond purchases now that we’re well into the fourth quarter and inflation has proven persistent rather than merely transitory.
The major indexes once again reached new unprecedented highs. The S&P 500 surpassed 4,500 for the first time in history during this period, while the Nasdaq topped 15,300 and the Dow Jones Industrial Average beat the 35,500 mark.
The Buffett Indicator, a popular valuation metric for stock markets that works by comparing the ratio of total market cap to gross domestic product, stands at 207.1% as of Dec. 7, indicating the U.S. stock market is significantly overvalued. This metric is named after Warren Buffett (Trades, Portfolio), who famously called it “probably the best single measure of where valuations stand at any given moment.”
When we factor in Fed support for asset prices, the valuation ratio of the Buffett Indicator stands at 150.7%, which is a little better, but still overvalued. If the stock market were to revert to its median historical ratio of total market cap to GDP, the average returns would be around -1.3%. Investors should note that Fed support disproportionately benefits the nation’s largest and most financially inefficient companies.
Even when markets are overvalued, that doesn’t necessarily mean it’s time to sell shares. Trying to time the market is a strategy that has proven to be inefficient, since there is no way to know when the next market crash will come. Thus, the stocks that gurus are selling the most of are likely to be sold due to lackluster outlooks. According to GuruFocus’s Hot Picks, a feature which allows investors to screen for the stocks that had the most guru buys or sells in the most recent quarter, the five stocks that gurus were selling the most during the third quarter of 2021 (as determined by net sells) were Charles Schwab Corp. (SCHW, Financial), Comcast Corp. (CMCSA, Financial), Netflix Inc. (NFLX, Financial), Bank of America Corp. (BAC, Financial) and JPMorgan Chase & Co. (JPM, Financial).
Charles Schwab
Based in San Francisco, Charles Schwab (SCHW, Financial) is a financial services company that offers a wide range of products, from mutual funds and bonds to stocks, options and futures. The popular online broker has more than 12 million in client accounts and $3.85 trillion in assets under management.
Throughout the quarter, 19 gurus sold shares of Charles Schwab while only two gurus bought shares, resulting in 17 net sells. As of the quarter’s end, the stock appeared in the portfolios of 25 gurus.
Sellers of the stock included Catherine Wood (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio), while the two buyers were Ray Dalio (Trades, Portfolio) and Mairs and Power (Trades, Portfolio). Gurus have been net sellers of the stock since mid-2020.
Charles Schwab’s top guru shareholders are Dodge & Cox with 3.93% of shares outstanding, Primecap Management with 1.54% and Al Gore (Trades, Portfolio) with 0.68%.
The stock traded for an average price of $71.45 in the three months through the end of September. As of Dec. 7, the stock trades around $81.71, which is near the top of the 52-week range of $48.89 to $84.49. The GF Value chart assigns the stock a rating of significantly overvalued.
Charles Schwab merged with its main competitor, TD Ameritrade, near the end of 2020. The timing turned out to be opportune for investor optimism on the stock due to the sudden influx of interest in investing. The newly combined company has seen its number of new accounts rise steadily over the past year, with 3.2 million new brokerage accounts being added in the first quarter of 2021 alone. However, the companies have run into unexpected trouble when it comes to integrating their businesses. Schwab now estimates it won’t complete the integration until 2023. Though the company has not provided a reason for this, it seems to hint that business synergies were not as easy to realize as had been expected.
Consensus estimates from Morningstar have this year’s revenue pegged at $18.4 billion, a huge improvement compared to last year’s $11.6 billion. Earnings per share are expected to come in at $2.81 versus last year’s $2.12. For 2023, analysts are calling for revenue of $20.3 billion and earnings per share of $3.41.
Comcast
Comcast (CMCSA, Financial) is an American telecommunications conglomerate that operates through two main segments: Comcast Cable, which provides video, high-speed internet and phone plans to residences under the XFINITY brand, and NBCUniversal, which owns a portfolio of television news and entertainment assets.
During the quarter, 24 gurus sold shares of Comcast while 10 gurus were buying the stock, which resulted in 14 net sells. At the end of the quarter, the stock was in the portfolios of 39 gurus.
Lee Ainslie (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) were among the sellers of the stock, while buyers included Mark Hillman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio). Over the past two years, gurus have continuously been net sellers of Comcast.
The company’s top guru shareholder is Dodge & Cox with 1.83% of shares outstanding, followed by First Eagle Investment (Trades, Portfolio) with 0.64% and Nelson Peltz (Trades, Portfolio) with 0.44%.
During the quarter, shares traded around $58.36 apiece. On Dec. 7, the stock was trading around $49.74, which is near the bottom of the 52-week range of $48.15 to $61.80. According to the GF Value chart, the stock is fairly valued.
A leader in the internet and cable businesses for decades, Comcast is one of the old giants that is still going strong, even if growth has slowed down in recent years due to cord-cutting as more cable customers switch fully to streaming services. With a three-year Ebitda per share growth rate of 4.8%, some analysts believe that while the company will likely continue growing as its high-speed internet services become more popular, that growth might not merit its current PEG ratio of 2.0. For most of the third quarter, the stock could not be considered cheap, though it has fallen to a lower valuation in the fourth quarter.
Analysts surveyed by Morningstar are anticipating revenue of $115.6 billion for full-year 2021, up from $103.5 billion in 2020. Earnings per share, on the other hand, are expected to rise to $2.97 from last year’s $2.28. For 2023, consensus estimates call for revenue of $125.5 billion and earnings per share of $4.22.
Netflix
Founded in 1997 as a DVD mail rental service, Netflix Inc. (NFLX, Financial) has grown to become a subscription streaming giant. The company typically acquires new content through licensing or in-house production, and availability can vary by popularity, cost of licensing and seasonality.
During the quarter, Netflix saw 18 guru sells and six guru buys for a total of 12 net sells. As of the quarter’s end, there were 20 gurus who held the stock in their portfolios.
Steven Romick (Trades, Portfolio) and Tom Gayner (Trades, Portfolio) were among those selling shares of Netflix. Meanwhile, buyers included Dalio and Mario Gabelli (Trades, Portfolio). Gurus were mostly bullish on the stock until the recent quarter, which market a sudden switch to overall bearish sentiment.
The most notable guru shareholders of Netflix are Baillie Gifford (Trades, Portfolio) with 1.80% of shares outstanding, Frank Sands (Trades, Portfolio) with 1.17% and Ken Fisher (Trades, Portfolio) with 0.94%.
Shares were trading for an average price of $550.68 during the quarter. By Dec. 7, the stock has risen to around $624.80 per share, which is toward the higher end of the 52-week range of $478.54 to $700.98. The GF Value chart gives the stock a rating of fairly valued.
Netflix has been a contentious topic among analysts and investors alike as the company faces an increasing number of competitors that could potentially eat away at its market share. So far, the market has been supportive of multiple streaming services, but many households are reaching the point where they will pick and choose only a few, since most don’t even have the free time for many streaming services to be worthwhile. On the other hand, due to its market dominance, Netflix has retained a high amount of customer stickiness, and it continues to be successful in expanding to international markets.
Analysts certainly seem to believe the company can continue its historical growth rates, which average around 28% per year. Consensus estimates have set this year’s revenue projections at $29.7 billion versus last year’s $24.9 billion, while earnings per share are expected to be $10.92 versus $6.08 last year. By the time 2023 rolls around, Netflix is expected to bring in revenue of $39.4 billion and earnings per share of $17.43.
Bank of America
Bank of America (BAC, Financial) is a U.S. bank major with headquarters in North Carolina. With approximately $3.08 trillion in total assets, it provides a wide range of traditional, corporate and investment banking services as well as other financial services.
In the three months through September, 18 gurus sold shares of Bank of America while seven gurus bought shares, resulting in 11 net sells. There were 28 gurus who held the stock at quarter’s end.
Sellers of the stock included Ken Heebner (Trades, Portfolio) and Andreas Halvorsen (Trades, Portfolio), while buyers included Diamond Hill Capital (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio). Gurus have been mostly bearish on the stock for the past couple of years, with the exception of the fourth quarter of 2020.
The top guru shareholder of Bank of America is Warren Buffett (Trades, Portfolio) with 12.34% of shares outstanding, followed by Dodge & Cox with 0.87% and Primecap Management with 0.45%.
During the quarter, shares traded around $40.31 apiece. On Dec. 7, the stock traded around $44.73, which is closer to the high end of the 52-week range of $28.14 to $48.69. GuruFocus gives the stock a rating of significantly overvalued.
Bank of America continues to suffer from the record low interest rates that are causing its traditional revenue stream to slow to a trickle. In contrast, its investment banking arm has grown, though this revenue still isn’t enough to make up for the loss of interest income. The stock is now trading below its median price-earnings ratio from the past decade, and the Federal Reserve has hinted that it might raise interest rates earlier than expected, so conditions could soon improve for the bank.
For full-year 2021, analysts are expecting revenue of $89.1 billion versus last year’s $85.5 billion and earnings per share of $3.49 versus last year’s $1.87. In 2023, consensus estimates call for revenue of $98.4 billion and earnings per share of $3.53.
JPMorgan Chase
With total assets of $3.68 trillion, JPMorgan Chase (JPM, Financial) is the largest bank in the U.S. and the sixth-largest bank in the world. Based in New York, the investment banking company offers a full range of traditional and investment banking services to individual and corporate clients worldwide.
There were 18 gurus selling shares of JPMorgan during the quarter while eight gurus bought shares, resulting in 10 net sells. At the quarter’s end, JPMorgan appeared in the portfolios of 30 gurus.
Arnold Van Den Berg (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissace Technologies were among those selling the stock. Meanwhile, buyers included George Soros (Trades, Portfolio) and Dalio. Gurus have mostly been selling the stock in recent years, though there was a spike in buying in the second quarter of 2020.
The biggest guru shareholders of JPMorgan are Primecap Management with 0.42% of shares outstanding, Fisher with 0.24% and Chris Davis (Trades, Portfolio) with 0.17%.
Shares were trading for an average price of $156.81 during the quarter. On Dec. 7, the stock traded around $162.24, which is near the higher end of the 52-week range of $118.10 to $172.96. Based on the GF Value chart, the stock appears to be modestly overvalued.
Like Bank of America, JPMorgan is facing a situation of lower interest and growing investment banking revenues, noting in its third-quarter results that investment assets are growing faster than average deposits. With a 9.4% wallet share, JPMorgan is raking in more investment banking fees than any other company in the world, and its investment banking revenue is beginning to catch up with traditional banking revenue, though this puts the top line at more risk in the case of a market downturn or a decline in order flow.
Analysts are expecting JPMorgan to rake in $122.9 billion in revenue for full-year 2021, up from $119.4 billion last year, while earnings per share are expected to grow to $14.92, up from $8.88. However, the analyst consensus estimate seem less optimistic about the future, with 2023 projected to see revenue of $129.8 billion and earnings per share of $13.34.
