Warren Buffett, the Oracle of Omaha, likes banks for next year
As we begin to ponder what sectors will rule the markets in 2014, technology, healthcare and industrials are areas that many pundits point to. If you ask Warren Buffett, though, he’ll provide a decidedly different answer.
On CNBC earlier this week, Buffett gave a ringing endorsement to large-cap banks, revealing that he thinks they’re “in best shape [he] can remember.” While anyone who tracks Berkshire Hathaway’s equity portfolio probably had a hunch Buffett is upbeat on banks—over 40% of his holdings are invested in the financial sector—these new comments indicate we should expect his bullishness to continue into next year.
By focusing on the best picks of the best hedge funds and other elite investors, it’s possible for retail investors to beat the market over the long-term (discover the data behind this phenomenon). Buffett is the cream of the crop and in light of his recent comments, we should take note of how he’s playing the banks.
Wells Fargo [s:WFC] is unequivocally the billionaire’s biggest banking bet, and his largest equity holding at that. The global giant is lauded for its management practices and simple business model, and its connection to Buffett has helped it land financing and advisory roles in multiple Berkshire acquisitions.
While shares of Wells Fargo are up nearly 25% year-to-date and the bank did beat Wall Street’s third quarter earnings estimates, its home lending business has been hurt by falling mortgage applications. Still, Wells’ long-term growth prospects and scale advantages remain intact, and Buffett has to love its price at a mere 10.6 times forward EPS. Don’t ignore the 2.8% dividend yield either; it’s the best payout among the ‘Big Four.’
US Bancorp [s:USB] is Buffett’s No. 2 bank holding. Due to its attractive valuation, solid dividend yield, and strong growth prospects, many analysts know this regional player as a mini-Wells Fargo. In fact, US Bancorp is the only big bank that generates higher ROE and ROA figures than Buffett’s top pick.