US bank stocks look sexy for investment star Warren Buffett

EDINBURGH — It’s no secret that BizNews founder Alec Hogg is a fan of US investment great Warren Buffett – who also has many followers in South Africa’s asset management community. Alec has been among the pilgrims to the annual Berkshire Hathaway shareholders’ meeting and applied his study of Buffett’s methods to write a book highlighting how you can nurture your stock market assets like the Sage of Omaha. “How to Invest Like Warren Buffett: Discover the Wisdom of the World’s Greatest Wealth Creator,” was published in 2015. Recently, Alec reshuffled the BizNews portfolio, increasing its weighting in banking stocks. This is what Buffett’s Berkshire Hathaway has done too, as Bloomberg reports. It is taking advantage of a drop in stock prices to buy at bargain prices, investing against the fearful herd.  – Jackie Cameron 

By Katherine Chiglinsky and Ben Foldy

(Bloomberg) – Warren Buffett’s Berkshire Hathaway Inc. took advantage of a plunge in bank stocks to pile even further into his bet on financials, while trimming a giant stake in Apple Inc.

Berkshire spent the last half of the year snapping up more shares of banks and insurers, moves that made the company a major shareholder in four of the five largest US banks. The Omaha, Nebraska-based conglomerate boosted its stake in JPMorgan Chase & Co. and Bank of America Corp. in the last three months of the year.

Key insights

  • Berkshire reduced its Apple stake by 1% in a period that marked its first holiday quarter sales decline in 18 years and saw shares plunge 30%t. It’s still the biggest holding in Buffett’s portfolio, and the stock has rebounded about 8% this year.
  • Buffett didn’t enjoy his time investing in International Business Machines Corp., but he may have made quite a haul on its latest purchase. Berkshire owned 4.2m shares of Red Hat Inc. at year-end, though it’s unclear if they were bought before IBM’s purchase of the company sent the stock up 45% on Oct. 29.
  • Berkshire also boosted its stakes in regional lenders, including PNC Financial Services Group Inc. and US Bancorp. That could be a bet on consolidation in the industry, as this month’s announced merger between SunTrust Banks Inc. and BB&T Corp. has led to speculation that more deals are coming.

Market reaction

Oracle shares dropped 1.3% at 4:56pm in New York, after the end of regular US trading. Apple was down as well, losing about 0.5%.

Get more

Buffett had long praised JPMorgan’s Jamie Dimon even as Berkshire Hathaway didn’t invest in the stock. Berkshire eventually plowed in when the timing aligned, according to Vice Chairman Charles Munger. “As investment has gotten harder and the banks have done better and better, we’ve finally reached a crossing point where he was willing to act,” Munger said Thursday in an interview after the Daily Journal Corp. meeting in Los Angeles. Berkshire’s dalliance with Oracle Corp. was short-lived.

After taking a $2.1bn stake in the software firm in the third quarter, Berkshire had sold out by year-end. Buffett has typically taken a more cautious approach to technology companies, given his lack of familiarity with the space. Buffett likes to take advantage of what he views as fear in the markets, and that certainly hit banks last quarter. The S&P 500 Financials Index dropped 14% in the fourth quarter, the worst period in more than seven years.