Why Warren Buffett is big on big Banks..?
- Trading Tips
- 1 month ago
Berkshire Hathaway CEO Warren Buffett is famous for having a good eye for value. These days, he has been looking hard at big U.S. banks.
Berkshire Hathaway (ticker: BRK.A) bought more than $13 billion of bank stocks in the third quarter, highlighted by a new, $4 billion holding inJPMorgan Chase (JPM) and an almost $6 billion purchase of Bank of America(BAC), the first major open-market buy by Berkshire.
“Buffett’s investments offer validation for what we see as the value in the group,” says Mike Mayo, a banking analyst with Wells Fargo.
“Banks are less cyclical than they have been in decades and have more resilient earnings streams because of improved financial discipline and risk control.” He sees earnings growth of 50% or more for JPMorgan, Citigroup, and Bank of America over the next four years.
Investors don’t share Mayo’s—or Buffett’s—enthusiasm. Bank stocks have been weak on concerns about the global economy and slowing loan growth. The KBW index of 24 bank stocks is down 8% this year. Wells Fargo, led by CEO Timothy Sloan, and Citigroup are off about 15%. Goldman, the worst performer in the Dow Jones Industrial Average, is down 25%.
Buffett, who didn’t respond to a request for comment, may see what Mayo and other bulls do: a group that has lagged behind the market despite strong earnings growth and the most generous capital returns of any major industry.