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There’s a mystery going on, and Warren Buffett is at the center of it.
berkshire hathawayBerkshire’s regulatory filing with the U.S. Securities and Exchange Commission last month revealed that Buffett and his team bought only three stocks in the fourth quarter of 2023. However, Berkshire sought SEC approval to withhold disclosure for one stock for the second consecutive quarter. or more holdings.
Buffett appears to have made a mysterious purchase in the fourth quarter. Here he lists three potential candidates.
1.JP Morgan Chase
Whatever the mystery stock is, it’s probably in the financial services sector. why? In Berkshire’s third- and fourth-quarter regulatory filings, the company reported an increase in the cost basis of its “banking, insurance, and finance” stocks. However, Berkshire did not announce any financial stock purchases in either quarter.
JP Morgan Chase (NYSE:JPM) It’s exactly the kind of bank stock that Buffett has favored in the past. In fact, he began taking a sizable stake in the financial services giant in 2018, but relinquished his position in late 2020.
Buffett is a longtime friend of JPMorgan Chase CEO Jamie Dimon. When JPMorgan came under fire in 2013, Buffett compared Dimon’s leadership of the company to baseball great Babe Ruth. In 2018, Mr. Buffett and Mr. Dimon teamed up to try to persuade CEOs to stop providing quarterly earnings guidance.
JPMorgan Chase stock is relatively cheap, trading at just 11.6 times forward earnings. The company is highly regarded within the industry. Berkshire Hathaway investment manager Todd Combs has also joined the company’s board of directors. Perhaps all these factors are enough to solve the mystery: Buffett might just have bought shares in JPMorgan Chase.
2. Capital One Financial
Sometimes the best answer to a puzzle is to look back at the recent past. The last financial services stock that Buffett can be sure of buying is… capital one financial (NYSE: COF).
Berkshire did not start many new positions in 2023. But in the first quarter, the conglomerate bought more than 9.9 million shares of Capital One Financial. It added more than 2.5 million shares in the second quarter. After that, the purchases stopped. Or was it?
Capital One is even cheaper than JPMorgan Chase and Buffett’s top financial stocks. american bank. The company’s stock trades at a forward P/E ratio of just 9.8 times.
In the late third quarter and early fourth quarter of 2023, Capital One’s stock price was lower than it was in the second quarter, when Buffett was still raking in the stock. Maybe, just maybe, the legendary investor was determined to make the financial services company the next “whale” and began buying it so aggressively that Berkshire wanted to keep the deal secret.
3. Discover financial services
Now, an even longer shot.Buffett may have narrowed his targets. discover financial services (New York Stock Exchange: DFS) in Berkshire’s portfolio.
We find it trades at a more attractive valuation than JPMorgan Chase, with a forward earnings multiple of approximately 10.8x. It has also had a higher return on invested capital (ROIC), a metric that Buffett is known to favor, than JPMorgan in recent years.
However, this candidate has some twists and turns. Capital One announced plans to acquire Discover in February 2024. Had Berkshire known about the discussions between the two companies, it could not have purchased Discover stock without violating insider trading regulations.
But Berkshire started taking big stakes in companies in its not-so-distant past just before the big acquisition was announced. In late 2021, one of the conglomerate’s two investment managers purchased a stake in Activision Blizzard. Shortly thereafter, microsoft announced plans to acquire Activision Blizzard for $68.7 billion. Buffett denied knowing anything about the deal beforehand.
What is not a mystery?
Did Buffett buy JPMorgan Chase, Capital One Financial, or Discover Financial Services in late 2023? That’s still a mystery. But it’s no surprise that the Oracle of Omaha only invests in stocks that it believes are well-run and worth a reasonable value based on their earnings prospects. This is a smart and transparent strategy for any investor.
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Bank of America is an advertising partner of The Motley Fool’s Ascent. Discover Financial Services is an advertising partner of The Motley Fool’s Ascent. JPMorgan Chase is an advertising partner of The Motley Fool’s Ascent. Keith Speights has held positions at Bank of America, Berkshire Hathaway, and Microsoft. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, JPMorgan Chase, and Microsoft. The Motley Fool recommends Discover Financial Services and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Warren Buffett bought a mystery stock in the fourth quarter. Here are three good candidates.Originally published by The Motley Fool
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