Buffett: Bet on Bank Stocks
Business magnate Warren Buffett shared some of his thoughts on the current economic debacle in an interview with CNBC‘s Becky Quick. On the global economic condition: “certainly better in the U.S. than it is in Europe,” and “we’re still inching ahead.”
Among some of his recent purchases is Wells Fargo (NYSE:WFC), which saw its shares drop in price about 2.27 percent in the past month through October 26. Despite the crisis and pending lawsuits, banks like JPMorgan (NYSE:JPM), Citigroup (NYSE:C), and Bank of America (NYSE:BAC) still promise strong return on equity. For a variety of reasons investors are unlikely to see performance return to pre-crisis levels, but Buffet says they are “still a good business.”
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Wells Fargo hasn’t seen a lot of action compared to the other big banks recently. Stock price has plugged ahead fairly steadily this year to date, gaining over 23 percent. As of October 24, it is sitting about 3.8 percent above its 200-day simple moving average, but about 2.7 percent below its 20-day SMA. In the absence of catalysts, this may be one of the few times for a while when the stock is comparatively cheap.
The bank repurchased $2.6 billion in common shares in the first 9 months of the year, and recently announced a plan to buy back as many as 200 million more shares.
However, Wells Fargo’s stock price has not advanced as quickly as that of other giants like Bank of America, up over 64 percent this year to date. Bank of America recently staked its claim to a “fortress balance sheet.” CEO Brian Moynihan told his employees, “we have the top capital in the industry, the top liquidity in the industry.”
Styled after a roller-coaster, Citigroup’s share price has climbed over 39 percent this year to date. The recent executive shake up has sparked conversation both ways for the bank, but the transition has gone smoothly so far.
“The United States economy is not tanking,” says Buffett. That may continue to be the case as financial institutions stay smart and stay strong.
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