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Given Warren Buffett’s impressive track record as an investor, berkshire hathaway‘s $368 billion public equity portfolio is a valuable source of potential investment ideas, especially for large holdings. Near the top of that list, investors will notice: american bank (NYSE:BAC) and american express (NYSE:AXP) It accounts for a total of 18.1% of the portfolio.
Buffett and Berkshire have owned both of these financial stocks for quite some time, but are either stocks worth investing in right now?
american bank
Total assets are $3.2 trillion (as of December 31). american bank is one of the largest financial services institutions in the United States, and its large scale and strong brand recognition allow it to attract low-cost deposits, a stable source of funding that fuels loan growth.
Buffett says he likes it best when the holding period for an investment is forever. There may be no other industry where it is easier for investors to find these types of businesses than in banking. That’s because banks facilitate the movement of capital and are fundamental to the functioning of the economy. Their essential services are always needed.
Macroeconomic uncertainty and rising interest rates are making Bank of America’s business a bit tougher. Net interest income fell 5% in the fourth quarter as Bank of America began paying higher deposit yields, which was not fully offset by higher interest rates on loan products.
Stocks will be traded immediately book value This indicates that they may be highly valued. However, this valuation is significantly more expensive than the stock was held just three months ago.
american express
American Express is similar to part of Bank of America’s business in that it approves credit card borrowers, lends money to customers, and earns interest and fees in doing so.But it’s also similar visa and master Card That is, they operate the underlying payment network on which transactions are processed. This means businesses benefit from a strong brand, especially among affluent customers. network effect.
AmEx has recently posted much better financials than Bank of America. Revenue (after interest expense) and diluted earnings per share will both increase by 14% in 2023, and he expects double-digit growth again this year. Cross-border spending activity is fueling that growth.
What makes American Express stand out among other card issuers is that its net charge-off rates are typically among the lowest among its peers. The company targets high-income customer groups and generates revenue through a spend-driven model, making it resilient in the face of business cycles.
The company’s stock price has doubled over the past five years, but its current price-to-earnings ratio is hovering around 19 times, which is in line with the average over the past five years.
Which stocks should I buy?
It’s understandable that investors would want to follow in Buffett’s footsteps by investing in both of these businesses. After all, Oracle of Omaha is certainly an expert when it comes to analyzing companies in the financial services sector. But it’s best to think critically and independently about stock selection.
I fully appreciate Bank of America’s industry and competitive advantages. And we understand that this business has weathered many recessions in the past. However, I’m not a fan of cyclical companies. Additionally, Bank of America primarily provides commoditized products and services. This makes you no longer want to own stocks.
On the other hand, I’m a fan of American Express. Although its lending operations may expose it to fluctuations in the broader economy, the fact that it also operates a lucrative payment network is intriguing. And this is one of the strongest and most valuable brands in the world, which gives it some differentiation within the industry.
Of these two Buffett stocks, I think American Express is the better stock to own for the next five years.
Should I invest $1,000 in Bank of America right now?
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Bank of America is an advertising partner of The Motley Fool’s Ascent. American Express is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends long January 2025 $370 calls on Mastercard and short January 2025 $380 call options on Mastercard. The Motley Fool has a disclosure policy.
The article Warren Buffett’s Berkshire Hathaway’s $368 billion stock portfolio is invested in these two financial giants was originally published by The Motley Fool.
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