Stock Analyst Update

Berkshire Increases Bet on Banks, Financial Services

Greggory Warren, CFA

As we noted last week, wide-moat rated  Berkshire Hathaway (BRK.A)/(BRK.B) spent some $14 billion on the purchase of financial services stocks in the third quarter, with the sector accounting for 40.7% of Berkshire's reported equity portfolio at the end of September (much higher than the 13.8% financials weighting in the S&P 500 Index). The insurer's second largest sector weighting at the end of the third quarter was in technology, which accounted for 27.7% of Berkshire's equity portfolio, but much of that was by virtue of its large stake in narrow-moat Apple (which accounted for 25.8% of its equity holdings).

Berkshire's purchase of an additional 198.2 million shares of narrow-moat Bank of America for around $5.7 billion increased its stake to 8.9% of the bank's outstanding shares. The commitment of some $1.3 billion for an additional 24.3 million shares of wide-moat US Bancorp raised Berkshire's stake in that bank to 7.7%. With narrow-moat Goldman Sachs, Berkshire's purchase of 5.1 million additional shares for around $1.1 billion increased the insurer's stake to 4.9% of the investment bank's outstanding shares. And the purchase of 13.0 million more shares of wide-moat Bank of New York Mellon for about $685 million raised Berkshire's stake in the trust bank to 7.9%. With its new money purchases of narrow-moat JPMorgan Chase (35.7 million shares for some $3.9 billion), no-moat PNC Financial (6.1 million shares for $825 million), and narrow-moat Travelers Companies (3.5 million shares for $450 million) Berkshire closed out the third quarter holding 1.1%, 1.3%, and 1.3%, respectively, of these financial services firms' outstanding shares.

Of these names and Berkshire's other financial services holdings--wide-moat American Express, Visa, and MasterCard, narrow-moat M & T Bank and Torchmark, and no-moat Synchrony Financial--only Wells Fargo and Goldman Sachs are currently trading at steep enough discounts to out analysts' fair value estimate to recommend for long-term investors.

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Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.