Berkshire Hathaway Inc (BRK.B)

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>>> Warren Buffett Is Loading Up On Bank Stocks: This Might Be Why


Seeking Alpha

Feb. 11, 2019

by Lyn Alden Schwartzer


https://seekingalpha.com/article/4239971-warren-buffett-loading-bank-stocks-might


Bank stocks in the U.S. trade at rather low valuations due to concerns over a global economic slowdown, but the numbers show this to be a decent entry point.

Bubbles rarely pop from the same place twice in a row; banks are more financially sound than a decade ago and more critical eyes are on them.

There are considerable risks in equities in general, but a diverse portfolio that focuses on quality, value, and yield should hold up well.

My two favorite bank picks.

Bank stocks in general are rather cheap at the moment due to a flat yield curve and growth concerns. Although an economic slowdown or recession would be rough for many banks, some of the fears about them appear to be overblown.

I'm not overweight financials, but I'm not avoiding them either. Bank stocks appear appropriately priced at the current time. This article shows several reasons why banks are actually in pretty good shape relative to their valuations.

The Financial Select Sector SPDR ETF (XLF) representing the U.S. large cap financial sector currently has an average P/E of about 11.6 and an average P/B of less than 1.4.

Due to some big laggards in the mix, it still hasn't reached the peak value it had prior to the subprime mortgage crisis, although many of the higher-quality banks and insurers have grown tremendously.

Bank Stocks Have Strong Balance Sheets

Warren Buffett's Berkshire Hathaway has over $80 billion invested in banks. They represent about 40% of Berkshire's public stock portfolio. Berkshire itself also operates a massive insurance business.

Some of his bank stocks are large legacy positions, but in the most recent quarter he started new positions in JPMorgan Chase (JPM), PNC (PNC), and Travelers Companies (TRV), and added to his existing positions in Goldman Sachs (GS), Bank of New York Mellon (BK), U.S. Bancorp (USB), and Bank of America (BAC). He did, however, trim his exposure to Wells Fargo (WFC) which is understandable given their headlines over the past few years.

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