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Warren Buffett Stocks [His 7 Favorite Picks Now] - YouTube
Channel: Let's Talk Money! with Joseph Hogue, CFA
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Want to look inside the head of the world鈥檚
best investor?
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By the end of this video, you鈥檒l know Warren
Buffett鈥檚 favorite investments.
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In fact, he鈥檚 put nearly $60 billion down
on these stocks and I鈥檝e got three reasons
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why investors could see huge returns this
year.
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We鈥檙e talking Warren Buffett stocks today
on Let鈥檚 Talk Money.
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Joseph Hogue with the Let鈥檚 Talk Money channel
here on YouTube I want to send a special shout
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out to everyone in our community, thank you
for taking a part of your day to be with us.
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If you鈥檙e not part of the community yet,
just click that little red subscribe button.
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It鈥檚 free and you鈥檒l never miss an episode.
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The Berkshire equity portfolio includes just
42 companies for a total of $196 billion and
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is surprisingly concentrated in three industries.
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In this video, we鈥檙e going to be looking
at Buffett鈥檚 favorite sector why he has
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nearly a third of his money in banking stocks.
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I鈥檒l also show you how to find the best
stocks in the sector for huge cash yield and
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double-digit returns.
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Buffett took the lead for the Berkshire Hathaway
holding company in 1965 and has rewarded investors
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ever since.
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Returns on shares have climbed 20% annually
over the last 38 years, more than doubling
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the return on the broader market.
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That means instant market-buzz anytime the
company files its Form 13-F, that鈥檚 the
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disclosure all large money managers have to
file every three months.
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That look into Buffett鈥檚 investments is
what we鈥檙e using for this video series on
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the Oracle of Omaha鈥檚 stocks.
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We鈥檙e looking at Buffett鈥檚 biggest investments,
his favorite industries and even his worst
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investment.
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We鈥檒l look at the stocks Buffett believes
in, why he loves them and how you can use
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all this to find your own investments.
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Subscribe and click the bell icon to get notified
when the rest of the series goes live.
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I鈥檒l also be putting a link in the video
description below to a special playlist with
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all the videos.
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Now we know Buffett鈥檚 favorite company is
Apple, he鈥檚 bet over $44 billion in the
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iPhone giant, but taking a broader view of
his investments reveals that he鈥檚 also extremely
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bullish on one particular sector of the economy.
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In fact, Buffett not only has almost a third
of his money in this group but is also investing
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broadly across the industry.
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Berkshire has invested $58 million in seven
stocks within the banking industry versus
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a single bet or a few in most other industries.
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That tells me Buffett is not only loving a
few individual stocks in the group but he
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believes larger economic forces are going
to support the entire industry.
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That means you don鈥檛 necessarily have to
pick the winners among bank stocks because
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these broader forces are going to mean solid
returns across the entire index.
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Let鈥檚 look at some of the most recent changes
in Warren Buffett鈥檚 bank stocks.
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I鈥檒l then reveal why Buffett loves the banks
and a few stock picks of my own.
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Berkshire cut its position in Wells Fargo
& Company to come in under 10% ownership last
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quarter but still holds $24.7 billion in shares,
it鈥檚 second-largest holding.
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At the industry-level, Berkshire added to
its banking position with 3.7 million shares
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of US Bancorp and 1.4 million shares of Bank
of New York Mellon.
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The fund also holds nearly $20 billion in
Bank of America though it didn鈥檛 make any
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changes last quarter.
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Now the financials sector has underperformed
the rest of the market by about 5% this year
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and has actually fallen even harder over the
last few months.
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It hasn鈥檛 been the worst performing sector
but it鈥檚 missed standouts like consumer
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discretionary and tech stocks by a long shot.
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Despite several increases in short-term rates
by the Fed, long-term rates have barely budged.
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That鈥檚 bad news for the banks because they
lend out at those long-term rates and pay
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on deposits at short-term rates.
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Higher deposit rates and low loan rates, something
called the net interest spread, means bank
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profits have been weak this year.
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So what does Buffett see that other investors
are missing?
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We鈥檙e going to be getting into some deep
analysis here so bear with me.
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The upside to banks really comes from three
big catalysts we鈥檙e just starting to see.
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First is consumer and corporate borrowing
have rebounded this year and the economy looks
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to book a solid 3% rate for the year.
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Those low long-term loan rates have helped
support the housing market and business lending
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so we could see a big pickup in lending on
that economic growth.
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Another factor is going to be the loosening
regulation coming out of Washington.
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Right or wrong, the requirements that made
banks hold a larger part of their cash back
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after the recession meant lower profit margins.
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That鈥檚 starting to get reversed now.
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The President signed the biggest rollback
of banking regulation in a decade last May.
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It raised the threshold for banks facing increased
cash holdings from $50 billion to $250 billion
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and did away with a lot of the regulatory
testing for those smaller banks.
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That will free up cash to be lent out and
mean less fees banks have to pay.
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Last here is an increase in those long-term
rates that banks collect on their loans.
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We鈥檙e starting to see signs of inflation
and that general economic growth will push
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rates up as well.
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Those higher rates are going to breathe new
life into the banks and all three of these
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factors could bring investors back to the
group en masse.
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On a value basis, shares of financial companies
are some of the cheapest in the market.
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The sector trades for 12.6-times earnings
expected over the next 12-months.
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That鈥檚 right at the 10-year average multiple
and a discount of 4% on the average valuation
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over the last five years.
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Compare that to the broader market trading
at 16.6-times expected earnings, more than
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15% more expensive than the 10-year average.
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For those of you that want a broad investment,
the SPDR S&P Bank ETF, ticker KBE, gives you
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exposure to 80 banks in the United States
and pays a very nice 3.3% dividend yield.
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It鈥檚 got a lot of those smaller banks that
I think could do really well on those three
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factors.
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Even for investors that want to pick a few
individual stocks, you might consider putting
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some of your money in that broad fund to diversify
your risk more evenly across the sector.
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For individual picks, I love two of Warren
Buffett stocks in the banking group and I鈥檒l
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tell you why.
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Wells Fargo & Company is higher by just 3.8%
over the last year on the accounting scandal
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and a rare hit to an otherwise strong name
for customer service.
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The bank is the largest deposit gatherer in
the country and a leader in the mortgage market,
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meaning it will win big when those long-term
rates head higher.
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Return on assets has slumped to 1.0-times
this year from 1.4 in 2013, leaving room for
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stronger profitability on management鈥檚 turnaround
plan.
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Non-performing assets have shrunk for four
consecutive quarters and the bank has been
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able to grow deposits consistently.
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I鈥檒l admit that it may take time to rebuild
the company鈥檚 reputation after the scandals
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but Wells Fargo always had some of the highest
marks for customer satisfaction among banks
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and I think it can get there again.
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Shares trade at a price-to-book of 1.5-times
and pay a 2.8% dividend.
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U.S. Bancorp is my favorite regional banks
and one of the best managed in the industry.
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The bank gets about 60% of its revenue from
that core retail banking segment that will
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do well as rates rise but it also books 30%
of revenue in the fast-growing payment services
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segment.
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Warren Buffett owns just under 6% of the bank
and looking at its financials, you see why
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very quickly.
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Return on equity has averaged just under 15%
over the last decade, one of the highest returns
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in banking, and way above the bank鈥檚 cost
of equity at nine percent.
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The shares trade for just 2-times book value,
which is below the industry average, and pay
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a 2.4% dividend yield.
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Buffett鈥檚 investment in the banks doesn鈥檛
really surprise me.
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They鈥檙e cash flow machines with a lot of
economic upside.
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In our next video, we鈥檒l be looking at one
group of Warren Buffett stocks that have me
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scratching my head.
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He鈥檚 got a $9.3 billion dollar bet on a
group of four stocks that have historically
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lost investor money.
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Click on the link in the video description
below to watch all the videos in the Warren
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Buffett playlist and don鈥檛 forget to subscribe
to the channel.
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We鈥檙e here Mondays and Wednesdays with the
best videos on beating debt, making more money
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and making your money work for you.
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If you鈥檝e got a question about money, just
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