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When to Sell: Lessons from Warren Buffett's Newspaper Travails

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  • (0:45) - Berkshire Hathaway’s Newspaper Selloff
  • (9:20) - Stocks With Rising Revenue: Tracey’s Top Stock Picks
  • (20:15) - Episode Roundup: MOS, XOM, HCC, X, M

Welcome to Episode #176 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Warren Buffett and Berkshire Hathaway have already made a deal in 2020.

Berkshire sold all of its newspaper holdings to Lee Enterprises for $140 million in cash.

Newspapers were near, and dear, to Buffett’s heart.

According to the New York Times, in 2012, he called himself a “newspaper addict.”

But ad revenue has been falling in the newspaper industry for more than a decade as the Internet has eaten into the lucrative classified ad and regular advertising business.

Newspapers lost their moat.

Buffett has often talked about the falling revenue, yet Berkshire kept holding onto its investment.

In 2020, he finally threw in the towel.

Emotional Investing: Everyone Does It

Why didn’t Buffett sell out of the newspaper business years ago?

Obviously, he loved it. He bought the Buffalo News in 1977. It was important to him. But the industry has changed.

Did he let his emotions get the better of him and ignore the fundamentals?

He wouldn’t be the first investor. It’s easy to do.

How Do You Know When to Sell?

1.       Watch the revenue. Is it falling every year and isn’t attributable to a temporary issue like a recession? Could be a deeper problem.

2.       Watch the earnings. Investors should want earnings that are on the rise. Who wants a company that is seeing a decline for years?

5 Stocks in Tough Industries

1.       Mosaic (MOS - Free Report) is a large fertilizer company. It’s a Zacks Rank #5 (Strong Sell) because the 2020 and 2021 earnings estimates continue to be slashed. The agriculture industry has struggled over the last 18 months due to poor weather and the China and US trade dispute. But is there anything fundamentally different about the fertilizer industry?

2.       Exxon XOM is in an industry that appears poised for changes: the fossil fuels. Earnings have been sliding the last 3 years thanks to lower crude and natural gas prices. Shares are down 32% over the last 5 years while the S&P 500 is up 59% during the same time.

3.       Warrior Met Coal HCC supplies premium hard coking coal to the global steel industry. But the steel industry has been struggling due to tariffs in the United States. Warrior is trading with a forward P/E of 5.8 but earnings are expected to fall 35.3% in 2019 and another 35.7% in 2020.

4.       US Steel X is a Zacks Rank #5 (Strong Sell). The steel giant is expected to see falling revenue in both 2020 and 2021 with earnings expected to plunge 1,644% in 2020. Shares are down 64% over the last 5 years.

5.       Macy’s M is in what many have called a “dying industry”, i.e. the shopping mall. But recently it announced it was closing 125 mall-based stores and cutting costs to get more competitive. Revenue peaked in 2015 and is expected to slide through 2022. Are department stores over?

What else should you know about when to sell?

Tune into this week’s podcast to find out.

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