Would Warren Buffett buy Commonwealth Bank of Australia or CSL Limited?

Commonwealth Bank of Australia (ASX:CBA) and CSL Limited (ASX:CSL) are both high-quality blue-chip stocks but there are good reasons why Buffett doesn't own either of them.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Avid followers of investing legend Warren Buffett will know that one of his many brilliant quotes is:

"You pay a very high price in the stock market for a cheery consensus."

Buffett's point is that 'investing with the herd' can be a dangerous pursuit!

For many investors it's more comforting to buy stocks which are popular with their peers, that are doing well and which everyone seems to be in agreement are a good idea to buy. This scenario can ultimately be a major source of portfolio underperformance. This occurs because rarely is an undervalued stock (let alone a bargain) to be found amongst the most widely liked companies.

Case in Point

  • Commonwealth Bank of Australia (ASX: CBA) reached a fresh new record intra-day high of $96.60 on Friday.
  • CSL Limited (ASX: CSL) also hit a fresh new high of $96.60 on Friday as well.

There is plenty of market chatter at the moment about which of these two stocks will be the first to hit the 'triple-digit' mark. It's understandable that it's a point of conversation, however, what investors should be focusing on is the value of these two stocks, not the price.

In my view, Buffett wouldn't be a buyer of either CBA or CSL at these levels. In fact, he hasn't even been a buyer of them at lower levels despite every possibility that he is familiar with the financial details of both of these companies, particularly CBA.

For one, it is widely known that Australian banks are amongst the most expensive in the world, Buffett can invest anywhere so he would be unlikely to choose the most expensive region to begin with and certainly he'd be unlikely to buy a bank stock which sells so far above book value.

Meanwhile, I'd guess Buffett would consider CSL outside his "circle of competence". Despite the impressive track record and solid earnings base of this world class biotech, Buffett would probably view the future market dynamics for CSL (I'm talking time frames of 10, 20 and 30 years) as too difficult to evaluate accurately, and therefore too difficult to put a value on the future earnings stream from CSL.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.  

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »