Do What Buffett Does

Yesterday in Wealth Watch, I pointed out energy stocks look like great bargains in terms of cheap valuations and oversold sentiment.

Profits are expected to double this year for energy shares as a group, yet the sector trades at just 13.7 times next year’s earnings!

Of course valuation alone isn’t the best market timing indicator. Stocks that are already underpriced could get cheaper.

Another good way to spot bargain-buying opportunities is to follow the money.

The best way to do that is by following what some of the world’s savviest investors are doing with their own hard-earned investment cash. One of the best around to follow is the Oracle of Omaha himself, Warren Buffett. Buffett is one of the world’s best bargain-hunting investors.

So what has Buffett been buying lately?

Financial stocks, according to the latest SEC filings from Berkshire Hathaway.

According to the filing, Buffett has significantly boosted his bets on big U.S. banks in Berkshire’s investment portfolio, including:

  • A new $4 billion stake in JPMorgan Chase (NYSE: JPM). Plus, Buffett is putting his own personal money to work in JPM, in addition to Berkshire’s holdings…
  • Another new position in PNC Financial Services (NYSE: PNC), a Pittsburgh-based super-regional bank, added during the third quarter…
  • Buffett also added more Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), Bank of New York Mellon (NYSE: BK) and U.S. Bancorp (NYSE: USB) shares recently.

These recent moves give Buffett large stakes in three of the top four American banks by assets including his long-standing position as the top shareholder in Wells Fargo (NYSE: WFC).

Berkshire also maintains large stakes in M&T Bank (NYSE: MTB), American Express (NYSE: AXP), Mastercard (NYSE: MA) and Visa (NYSE: V).

Earnings Growth

It’s easy to see why the Oracle of Omaha is attracted to big bank stocks. Like energy, the sector is deeply undervalued in spite of robust profit growth.

Get this: The S&P 500 Financials Sector is trading at 11.7 times 2019 next year’s earnings.

It’s the cheapest sector, by far, in the entire stock market. The S&P 500 by contrast is priced at nearly 16 times 2019 profit estimates.

Meanwhile, S&P Financials Sector profits are on track to grow 25.4% this year, well ahead of the S&P’s overall earnings growth rate of 20.5%. Plus, financial shares are expected to post profit growth of nearly 10% next year.

Once again, that’s ahead of the 9% earnings growth estimate for the S&P 500 Index.

Bottom line: Warren Buffett is all in on financial stocks, boosting his stakes during the recent stock market weakness.

If these blue chip stocks are good enough for Warren Buffett’s money in today’s volatile times, then that’s good enough for me too.

Big bank stocks should offer some of the best buying opportunities once the dust settles.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

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Mike Burnick

Mike Burnick is the editor of Mike Burnick’s Wealth Watch, Infinite Income, Amplified Income and Millionaire Moments. Mike has been bringing his trading strategies to the masses for over 30 years. He has been with Seven Figure Publishing since 2017. In 2018, the average return of Infinite Income beat the...

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