Warren Buffett (Trades, Portfolio)’s stake in his largest and much praised position, Wells Fargo & Co. (WFC, Financial), inched up to 10% in March, an event drawing interest because it triggers a regulatory requirement for special disclosure and because it highlights an overlooked increase he made last year.
Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) reported the change in percentage ownership Monday, but the amount of shares it owned did not change from the last filing. As of March 16 Buffett held 506,308,470 shares, the same amount he reported in a 13G dated Dec. 31 but did not disclose until February. The first filing, however, equated his stake to 9.9% of Wells Fargo’s outstanding shares, while the second equated the same amount to 10%.
Buffett’s increase in share ownership probably results from a decrease in Wells Fargo’s shares outstanding. A generous buyer of its own shares, the company spent $12.6 billion on repurchases in 2015. The fourth quarter, it repurchased 27 million shares and put an additional $500 million toward a 9.2 million-share forward repurchase that took place in first quarter 2016.
Wells Fargo has a three-year average share buyback rate of 0.9%, the lowest of his top five investments with the exception of Kraft Heinz Co. (KHC, Financial), which has a negative buy back rate.
Buffett has said in the past that he values share repurchases and their impact on his partial stakes. In 2014, share repurchases at three of his largest share investments – Coca-Cola (KO, Financial), American Express (AXP, Financial) and Wells Fargo – increased his ownership by several tenths of a percent each. Though modest increases, for each tenth of a percent his ownership in his top companies grew he pocketed an additional $50 million of their annual earnings, according to his annual letter.
“The earnings these investees retain are often used for repurchases of their own stock – a move that enhances Berkshire’s share of future earnings without requiring us to lay out a dime,” Buffett said.
Buffett announced his March ownership increase in Wells Fargo as the Fed and Treasury Department cap investors at 10% ownership of banks unless they agree not to exert a controlling influence. He made the required statement at the end of the filing, saying the shares “were acquired and are held in the ordinary course of business and were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities.”
Wells Fargo’s stock price fell 11% in the past year, as a member of the third-cheapest sector based on price-to-book discount relative to the 10-year average, according to the Financial Times. It traded around $48.08 per share Tuesday afternoon.
The bank has a P/E ratio of 11.6, P/S ratio of 2.9 and P/B ratio of 1.4, near its two-year low.
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