(GuruFocus, June 18, 2009) First off, let’s start with this quote:
History does not repeat itself, it is just awfully similar from time to time.
I wonder whether Warren Buffett wishes he listened to his own word of wisdom. Although he steered clear of the companies such as Lehman Brothers, Bear Stern, AIG, FNM, and FRE, he owned more than his fair share of financial stocks during the 2008-2009 market crash..
Among the 41 domestic USA stock that Berkshire Hathaway holds at the end of 1Q09, six of them are financial stocks, the investment and/or commercial banks and insurance companies who gave us all the trouble during the past year and three quarters. These are: Wells Fargo & Company (WFC, Financial), American Express Company (AXP, Financial), U.S. Bancorp (USB, Financial), M&T Bank Corp (MTB, Financial), SunTrust Banks Inc.(STI, Financial), and Bank of America Corp.(BAC, Financial)
Without exception, these stocks are up for the quarter, contributing to the recovery of Berkshire Hathaway’s book value. The more trouble the company has gone through, the higher it has recovered from the 52-week lows. They all outperform Berkshire Hathaway by a large margin for this quarter, but underperform Berkshire Hathaway from their 52-week highs.
1. Wells Fargo & Company (WFC)
Wells Fargo & Company is a diversified financial services company. Wells Fargo & Company has a market cap of $108.64 billion; its shares were traded at around $23.09 with a P/E ratio of 28.1 and P/S ratio of 2.1. The dividend yield of Wells Fargo & Company stocks is 0.9%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Wells Fargo & Company the business predictability rank of 4-star.
The stock has been in Berkshire Hathaway for almost 20 years. Warren Buffett was seen purchasing the stock in 1Q09 and for his personal portfolio in 4Q08. Thanks to the 204% run-up from the 52-week high, now WFC is at par with Berkshire Hathaway in terms of percentage down from 52-week high.
2. American Express Company (AXP)
American Express Company is a credit card company. American Express Company has a market cap of $27.96 billion; its shares were traded at around $23.95 with a P/E ratio of 13.1 and P/S ratio of 0.9. The dividend yield of American Express Company stocks is 3.1%. American Express Company had an annual average earning growth of 1.3% over the past 10 years.
AXP has been in the portfolio for at least the past 10 years. Recently, another Investment Guru, Bruce Berkowitz, an admirer of Warren Buffett, commented on the challenges and opportunities presented by the financial services company in an interview given to Morningstar.com:
AXP has run up 146% from 52-week low, but still 44% down from 52-week high.
3. U.S. Bancorp (USB)
U.S. Bancorp is a financial services holding company. U.S. Bancorp has a market cap of $33.72 billion; its shares were traded at around $17.77 with a P/E ratio of 14.4 and P/S ratio of 1.8. The dividend yield of U.S. Bancorp stocks is 1.1%. U.S. Bancorp had an annual average earning growth of 13.4% over the past 10 years. GuruFocus rated U.S. Bancorp the business predictability rank of 3.5-star.
At quarter end 1Q09, Berkshire Hathaway owns 69 million shares of USB, up 1.5 million shares from 4Q08. It has run up 22% for the quarter but still 53% down from the 52-week highs.
4. M&T Bank Corp (MTB)
M&T Bank Corp is a bank holding company. M&T Bank Corp. has a market cap of $4.97 billion; its shares were traded at around $44.75 with a P/E ratio of 11.4 and P/S ratio of 1.1. The dividend yield of M&T Bank Corp. stocks is 6.2%. M&T Bank Corp. had an annual average earning growth of 10.2% over the past 10 years. GuruFocus rated M&T Bank Corp. the business predictability rank of 4-star.
This is a smaller bank holding company among all the Berkshire Hathaway bank holdings. It is quiet and do not make many headlines. It gained a slim 4.5% for the quarter and 50% down from the 52-week high.
5. SunTrust Banks Inc.(STI)
SunTrust Banks Inc. is a commercial banking organization with operations in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia, and the District of Columbia. SunTrust Banks Inc. has a market cap of $5.46 billion; its shares were traded at around $15.31 with and P/S ratio of 0.6. The dividend yield of SunTrust Banks Inc. stocks is 2.7%. SunTrust Banks Inc. had an annual average earning growth of 2.3% over the past 10 years.
Berkshire Hathaway has 6.6 million shares of STI in year 2000 but has sold more than half of the shares along the way. As of 1Q09, it has 3.2 million shares.
Despite the 129% recovery from 52-week low, the hard-bit Florida bank is still 75% below its 52-week high.
Bank of America Corp.(BAC)
Bank of America Corp. is one of the world's leading financial services companies. Bank of America Corp. has a market cap of $97.42 billion; its shares were traded at around $12.3 with a P/E ratio of 12.9 and P/S ratio of 1.3. The dividend yield of Bank of America Corp. stocks is 0.3%. Bank of America Corp. had an annual average earning growth of 7.5% over the past 10 years.
Many of our users in this website wonder why Berkshire Hathaway bought the stock in the first place. Given the headline negative publicity surrounding the company, especially its top management, I would suggest to Warren Buffett that whoever made the recommendation (decision) to purchase BAC not to be considered to be Warren Buffett’s successor as Chief Investment Officer of Berkshire Hathaway.
The stock recovered 324% from its 52-week low but still 65% below its 52-week high.
Afterthoughts
The poor performance of the financial stocks during the past two years probably made Warren Buffett regret purchasing bank stocks at all, but have you ever wondered why he was able to stay clear of the disasters such as such as Lehman Brothers, Bear Stern, AIG, FNM, and FRE? (ok, he owned FRE/FNM before, but sold them long time ago early in this decade).
If you look closely, you will realize three of the six bank holdings (WFC, USB, and MTB) are 3.5-star and above in terms of business predictability. Now of the 10,000 companies traded in this country, GuruFocus only give less than 300 companies 3.5-star or above, yet, Warren Buffett selected the best of the best. As it turns out, high business predictability companies can weather the business cycles much better than the less competitors.
Of course, Warren Buffett did not discuss with us or refer to our Buffett-Munger stock Screener
when he bought those shares. On the other hand, when we device screener, we did not retrofit to make sure we include as many Warren Buffett’s stocks as possible either. We did, however, incorporate the investment tenets of Warren Buffett and Charlie Munger in devising our screener.
The high concentration of highly predictable bank companies in Berkshire Hathaway is our best confirmation.
For more about GuruFocus’s business predictability and why it matters, read this, this, this and this article.
To make easy for our users, GuruFocus has started publishing a news letter based on our Buffett-Munger stock screener. Starting from June 2009, each month, we screens, research and recommend on two stocks. The first issue is available through this link.
“The banking business is no favorite of ours. When assets are twenty times equity - a common ratio in this industry - mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate.”This is a quote from Warren Buffett’s 1990 Letter to Shareholders. Back then, the nation was in another, of smaller scale but equally remarkable real estate bubble burst and many banks burst with it. That was the period when Warren Buffett bought into Wells Fargo & Company, a company he held ever since then. If I omit the year when he made those remarks, and you can easily think these are remarks Warren Buffett made today on President Obama’s proposal of reforming the financial industry.
History does not repeat itself, it is just awfully similar from time to time.
I wonder whether Warren Buffett wishes he listened to his own word of wisdom. Although he steered clear of the companies such as Lehman Brothers, Bear Stern, AIG, FNM, and FRE, he owned more than his fair share of financial stocks during the 2008-2009 market crash..
Among the 41 domestic USA stock that Berkshire Hathaway holds at the end of 1Q09, six of them are financial stocks, the investment and/or commercial banks and insurance companies who gave us all the trouble during the past year and three quarters. These are: Wells Fargo & Company (WFC, Financial), American Express Company (AXP, Financial), U.S. Bancorp (USB, Financial), M&T Bank Corp (MTB, Financial), SunTrust Banks Inc.(STI, Financial), and Bank of America Corp.(BAC, Financial)
Without exception, these stocks are up for the quarter, contributing to the recovery of Berkshire Hathaway’s book value. The more trouble the company has gone through, the higher it has recovered from the 52-week lows. They all outperform Berkshire Hathaway by a large margin for this quarter, but underperform Berkshire Hathaway from their 52-week highs.
| Ticker | % Weighting in Portfolio | P/E | Yield (%) | Market Cap ($M) | Price Change Since 2009-03-31 (%) | % Above 52-W Low | % Below 52-W High |
|---|---|---|---|---|---|---|---|
| WFC | 10.54% | 30.1 | 0.8 | 116258 | +73.5% | 204.31 | -37.91 |
| AXP | 5.06% | 13.8 | 2.9 | 29459.1 | +85.1% | 145.91 | -43.53 |
| USB | 2.47% | 14.4 | 1.1 | 33814.9 | +22% | 102.04 | -53.09 |
| MTB | 0.74% | 12 | 5.9 | 5252.4 | +4.5% | 54.98 | -50.48 |
| STI | 0.09% | 2.7 | 5463.6 | 30.4% | 128.51 | -74.14 | |
| BAC | 0.08% | 14 | 0.3 | 105573 | +95.5% | 324.52 | -65.04 |
| BRK-B | 0.01% | 2.1 | 24.96 | -38.19 |
1. Wells Fargo & Company (WFC)
Wells Fargo & Company is a diversified financial services company. Wells Fargo & Company has a market cap of $108.64 billion; its shares were traded at around $23.09 with a P/E ratio of 28.1 and P/S ratio of 2.1. The dividend yield of Wells Fargo & Company stocks is 0.9%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years. GuruFocus rated Wells Fargo & Company the business predictability rank of 4-star.
The stock has been in Berkshire Hathaway for almost 20 years. Warren Buffett was seen purchasing the stock in 1Q09 and for his personal portfolio in 4Q08. Thanks to the 204% run-up from the 52-week high, now WFC is at par with Berkshire Hathaway in terms of percentage down from 52-week high.
2. American Express Company (AXP)
American Express Company is a credit card company. American Express Company has a market cap of $27.96 billion; its shares were traded at around $23.95 with a P/E ratio of 13.1 and P/S ratio of 0.9. The dividend yield of American Express Company stocks is 3.1%. American Express Company had an annual average earning growth of 1.3% over the past 10 years.
AXP has been in the portfolio for at least the past 10 years. Recently, another Investment Guru, Bruce Berkowitz, an admirer of Warren Buffett, commented on the challenges and opportunities presented by the financial services company in an interview given to Morningstar.com:
Bruce Berkowitz : I think last year we worried about financials. You didn't know what they owned, what they owed, and a few months ago I didn't even know who owned them. But it got to the point, especially with an American Express, where you could understand the basic businesses and there wasn't a lot of off-balance sheet risk. And I wasn't worried about derivatives and counter-party risks. And American Express has a significant cash flow from their merchant business, from their loan business.
And when you take at look at that cash flow in the relationship to the amount of potential bad debt that they had, you could see it was what I would call a "pig in the python" situation. Where the pig is the bad debt and they just had to digest that bad debt.
So in my mind it wasn't a question of American Express going out of business or failing, because they clearly had the balance sheet and the cash generation. It was just a question of how many quarters is it going to take for American Express to digest the bad debt created when they maybe got a little bit too exuberant on lending to a few that they probably should not have lent to.
AXP has run up 146% from 52-week low, but still 44% down from 52-week high.
3. U.S. Bancorp (USB)
U.S. Bancorp is a financial services holding company. U.S. Bancorp has a market cap of $33.72 billion; its shares were traded at around $17.77 with a P/E ratio of 14.4 and P/S ratio of 1.8. The dividend yield of U.S. Bancorp stocks is 1.1%. U.S. Bancorp had an annual average earning growth of 13.4% over the past 10 years. GuruFocus rated U.S. Bancorp the business predictability rank of 3.5-star.
At quarter end 1Q09, Berkshire Hathaway owns 69 million shares of USB, up 1.5 million shares from 4Q08. It has run up 22% for the quarter but still 53% down from the 52-week highs.
4. M&T Bank Corp (MTB)
M&T Bank Corp is a bank holding company. M&T Bank Corp. has a market cap of $4.97 billion; its shares were traded at around $44.75 with a P/E ratio of 11.4 and P/S ratio of 1.1. The dividend yield of M&T Bank Corp. stocks is 6.2%. M&T Bank Corp. had an annual average earning growth of 10.2% over the past 10 years. GuruFocus rated M&T Bank Corp. the business predictability rank of 4-star.
This is a smaller bank holding company among all the Berkshire Hathaway bank holdings. It is quiet and do not make many headlines. It gained a slim 4.5% for the quarter and 50% down from the 52-week high.
5. SunTrust Banks Inc.(STI)
SunTrust Banks Inc. is a commercial banking organization with operations in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia, and the District of Columbia. SunTrust Banks Inc. has a market cap of $5.46 billion; its shares were traded at around $15.31 with and P/S ratio of 0.6. The dividend yield of SunTrust Banks Inc. stocks is 2.7%. SunTrust Banks Inc. had an annual average earning growth of 2.3% over the past 10 years.
Berkshire Hathaway has 6.6 million shares of STI in year 2000 but has sold more than half of the shares along the way. As of 1Q09, it has 3.2 million shares.
Despite the 129% recovery from 52-week low, the hard-bit Florida bank is still 75% below its 52-week high.
Bank of America Corp.(BAC)
Bank of America Corp. is one of the world's leading financial services companies. Bank of America Corp. has a market cap of $97.42 billion; its shares were traded at around $12.3 with a P/E ratio of 12.9 and P/S ratio of 1.3. The dividend yield of Bank of America Corp. stocks is 0.3%. Bank of America Corp. had an annual average earning growth of 7.5% over the past 10 years.
Many of our users in this website wonder why Berkshire Hathaway bought the stock in the first place. Given the headline negative publicity surrounding the company, especially its top management, I would suggest to Warren Buffett that whoever made the recommendation (decision) to purchase BAC not to be considered to be Warren Buffett’s successor as Chief Investment Officer of Berkshire Hathaway.
The stock recovered 324% from its 52-week low but still 65% below its 52-week high.
Afterthoughts
The poor performance of the financial stocks during the past two years probably made Warren Buffett regret purchasing bank stocks at all, but have you ever wondered why he was able to stay clear of the disasters such as such as Lehman Brothers, Bear Stern, AIG, FNM, and FRE? (ok, he owned FRE/FNM before, but sold them long time ago early in this decade).
If you look closely, you will realize three of the six bank holdings (WFC, USB, and MTB) are 3.5-star and above in terms of business predictability. Now of the 10,000 companies traded in this country, GuruFocus only give less than 300 companies 3.5-star or above, yet, Warren Buffett selected the best of the best. As it turns out, high business predictability companies can weather the business cycles much better than the less competitors.
Of course, Warren Buffett did not discuss with us or refer to our Buffett-Munger stock Screener
when he bought those shares. On the other hand, when we device screener, we did not retrofit to make sure we include as many Warren Buffett’s stocks as possible either. We did, however, incorporate the investment tenets of Warren Buffett and Charlie Munger in devising our screener.
The high concentration of highly predictable bank companies in Berkshire Hathaway is our best confirmation.
For more about GuruFocus’s business predictability and why it matters, read this, this, this and this article.
To make easy for our users, GuruFocus has started publishing a news letter based on our Buffett-Munger stock screener. Starting from June 2009, each month, we screens, research and recommend on two stocks. The first issue is available through this link.
