Why 2 of Warren Buffett's 3 Worst-Performing Stocks in October Are Great Picks to Buy Right Now

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Warren Buffett would be the first to tell you that how a given stock performs during one month simply isn’t important. And he would be exactly right. Great stocks can slide over the short term, while crummy stocks can soar during the same period. What really matters is how well the stock performs over the long run.

Having said that, though, Buffett is a firm believer in buying great companies at a fair price. Several of the stocks in his Berkshire Hathaway portfolio are now available at a much more attractive price after sinking last month. Here are Buffett’s three worst-performing stocks in October — and why two of the three are great stocks to buy right now. 

Image source: The Motley Fool.

Buffett’s worst stocks last month

Mastercard (NYSE:MA) wins the dubious honor of ranking as Buffett’s worst stock last month with shares sinking nearly 16%. Roughly half of that decline came after Mastercard announced disappointing third-quarter results on Oct. 28.

The ongoing COVID-19 pandemic continues to weigh heavily on Mastercard’s financial performance. Mastercard reported Q3 revenue of $3.84 billion, down 14% year over year and below the average analysts’ estimate of $3.94 billion. The company’s adjusted earnings took a bigger hit, declining 27% to $1.6 billion, or $1.60 per share, missing the consensus Wall Street estimate of $1.64. 

Buffett’s second-worst performance in October came from Biogen (NASDAQ:BIIB). The biotech stock fell nearly 12%, with the decline stemming in part from the company’s Q3 results reported on Oct. 21.

Biogen’s revenue fell 6% year over year to $3.38 billion. Sales for the biotech’s multiple sclerosis (MS) franchise slid 4% with multiple generic versions of blockbuster MS drug Tecfidera now on the market. Sales for Biogen’s spinal muscular atrophy drug Spinraza also dropped 10%. 

Investors were also likely anxious about an upcoming meeting of an FDA advisory committee. This committee is scheduled to review data supporting Biogen’s regulatory filing for aducanumab in treating Alzheimer’s disease on Nov. 6. 

RH (NYSE:RH) took the No. 3 spot among Buffett’s worst-performing stocks last month. Shares of the luxury home furnishings retailer also fell by nearly 12%.

Unlike Mastercard and Biogen, though, RH delivered strong revenue growth in its latest quarter results announced in September. One potential culprit behind the stock’s slide in October was that investors could be concerned about the negative impact of increasing COVID-19 cases in the U.S. on RH’s business. The stock lost more than half of its value earlier this year during the coronavirus-fueled market meltdown.

Two out of three ain’t bad

My view is that the October declines make two of these stocks more attractive picks to buy now. I think, however, that one of these stocks is too risky.

Let’s start with the one to avoid — Biogen. The biotech has way too much riding on the FDA’s approval decision on aducanumab for my taste. Sure, if the experimental drug wins approval in treating Alzheimer’s disease, Biogen’s shares will skyrocket. However, there’s a not-so-insignificant chance that the decision won’t be favorable. After all, Biogen itself had seemingly thrown in the towel on aducanumab early last year.

Without FDA approval for aducanumab, Biogen’s growth prospects just aren’t very good. Its MS franchise is flailing. Spinraza isn’t the growth story it once was. There’s no guarantee that the rest of the company’s late-stage pipeline will be enough to make Biogen a big winner again.

On the other hand, I think that RH should keep performing well. The Federal Reserve has committed to keeping interest rates low. That, in turn, should prop up the housing market — which directly helps RH.

What about the COVID-19 pandemic? RH CEO Gary Friedman wrote in the company’s Q2 shareholder letter, “We are benefiting from the COVID-driven shift of spending in favor of the home, but this has coincided with a systemic shift and leapfrog of our operating model to a level unseen before in our industry.” 

My favorite of these underperforming Buffett stocks, though, is Mastercard. Yes, the pandemic could continue to hurt the company’s growth over the near term. However, the pandemic will end sooner or later. I think that the availability of COVID-19 vaccines hopefully next year will go a long way toward improving the business outlook for Mastercard.

More importantly, the shift from cash to digital payments seems likely to accelerate. That will be great for Mastercard over the long term. And, as Buffett himself would attest, it’s the long term that really matters.