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Holly LaFon
Holly LaFon
Articles (7910) 

Ackman, Buffett Like Financials: Banks the Most Gurus Own

October 06, 2011 | About:
Warren Buffett told CNN Money on Wednesday that “If I had a choice on buying or selling certain bank stocks in the United States right now, I’d be buying.” Bill Ackman, founder of Pershing Square Capital Management LP, also said that bank stocks are interesting at current prices which “assume financial Armageddon,” according to BusinessWeek. Bruce Berkowitz, of course, has been of the same opinion and has been among the earliest to dare to tread where others feared. Some of the bank stocks the most gurus have in their portfolios are Wells Fargo & Co. (NYSE:WFC), JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).

Wells Fargo & Co. (NYSE:WFC)

Wells Fargo is the stock that the most gurus, 19, own, with 14 new buys last quarter. Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services through stores. Wells Fargo & Co. has a market cap of $129.36 billion; its shares traded today for around $24.5 with a P/E ratio of 9.5 and P/S ratio of 1.4. The dividend yield of Wells Fargo & Co. stocks is 2%, and it had an annual average earnings growth of 5.4% over the past 10 years.

Wells Fargo is Warren Buffett’s second-largest holding. He has mentioned that return on assets is the most valuable metric for valuing a bank. Wells Fargo, at 1.3%, has the one of the highest ROAs of the banks in this article as of the end of the second quarter, second only to U.S. Bancorp at 1.5%. The ROA was its highest in three years. He also said in his 2010 investor letter that the bank “consistently prosper[ed] throughout the worst of the recession and [is] currently enjoying enormous financial strength and earning power.”

It is also one of the only stock Buffett has been buying in large quantities lately. He added 9,703,683 shares at an average price of $28.41 to his position, which now sits at 352,327,608 shares.

Moody’s downgraded Wells Fargo’s long-term credit rating on Sept. 21, on the rationale that the government is less likely to bail it and other banks out if they get into financial trouble.

Last quarter the bank reported a 29% increase in net income from the prior year. Total loans increased $766 million to $751.9 billion from $751.2 billion at March 31, 2011. The increase more than offset the continued planned reduction in non-strategic/liquidating portfolios, which declined $5.1 billion in the quarter. Core average deposits rose 6%.

JPMorgan Chase (NYSE:JPM)

Fourteen gurus own JPMorgan Chase. JPMorgan Chase & Co. is a global financial services firm with a market cap of $120.25 billion; its shares are trading at around $30.84 on Thursday. It has a P/E ratio of 6.5 and P/S ratio of 1.2. The dividend yield of JPMorgan Chase stocks is 3.2%.

JPMorgan has operated at a loss 7 of the last 10 years. In 2009 it made its highest free cash flow of the decade at $122 billion and in 2010 lost $3.8 billion. It has a higher return on assets than Wells Fargo currently, but not historically. It has grown its ROA at a 10.83% rate over the past 10 years. [chart] Its stock has fallen 23.67% year to date to $32.38, down from its 52-week high of $48.36.

JPM reported second-quarter net income of $2 billion, a 13% decline from the first quarter and a 49% increase from last year. Nonperforming assets totaled $13.2 billion, down from $18.2 last year and from the prior-year quarter of $15 billion. Its strong capital based allowed it to buy back $3.5 billion of stock in the second quarter.

The bank is also at a historical low P/E ratio, and low P/S and P/B ratios:


Buffett has a great deal of respect for JPMorgan CEO Jamie Dimon. He said in July that, “Jamie Dimon is a fabulous banker, and probably writes the best annual report in America,” Warren Buffett said in an interview. “I grab his report when it comes in and my friends do, too.

Bank of America (NYSE:BAC)

Ten gurus own Bank of America and six bought in the last quarter. Bank of America Corp. is a bank holding and financial holding company. Bank Of America Corp. has a market cap of $58.47 billion; its shares were traded at around $5.77 with and P/S ratio of 0.4. The dividend yield of Bank of America Corp. stocks is 0.7%.

Bill Ackman said on Bloomberg this week that he is bullish on big banks, and even Bank of America looks interesting at current levels, which he believes has “financial Armageddon” baked in already. Citigroup, however, is his fourth largest holding, and he owns no Bank of America as of June 30.

Bank of America is the only bank in this article with a negative return on assets at .6% for 2010 and negative 1.6% in the last quarter, down from a positive .4% in the previous quarter. The bank’s revenue fell to $134.2 billion in 2010 from $150.5 billion in 2009, but was still the second-highest revenue in 10 years. Net income, however, fell to a loss of $2.2 billion in 2010, from $6.3 billion in 2009.

Bruce Berkowitz said of Bank of America recently: “They have five different businesses, four of which are quite profitable, but there’s this one business, residential mortgages, which are still giving a lot of trouble, and they just took a $20 billion hit in one quarter as their estimate of what all the costs are going to be, including non-cash cost, you know, reduction of goodwill and other intangibles. And people believe that that can keep going like that. It can’t. It’s like insurance reserving. When we change your estimate, you change the number in one quarter for all the past and all your beliefs about the future.”

To view other financial stocks that gurus own, visit GuruFocus’ Aggregated Portfolios.

Rating: 3.6/5 (21 votes)


Vgm - 6 years ago    Report SPAM
Buffett talked recently about having spent $4 billion on stocks during Q3, in addition to the BAC deal. It will be interesting to see whether any of that has gone into existing or new bank holdings.
LisaLL - 5 years ago    Report SPAM

a lot of value in this sector

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