Warren Buffett continues to like bank stocks. Some of the biggest positions in the Berkshire Hathaway (NYSE:BRK-A/NYSE:BRK-B) portfolio are in banks and financial institutions.
For years, Buffett has favored the cash generated by lenders. He also likes the earned interest on loans and their comparative immunity to economic cycles. While he has sold some bank stocks over the years, he’s stood by his largest positions in lenders. Additionally, he maintained many positions throughout varied economic times, including the Covid-19 pandemic and current periods of high inflation. Also, Buffett earns a healthy dividend income from the billions of shares he holds in lenders, credit card companies and other financial institutions.
Therefore, with his 13F regulatory filing recently made public, we look at the three best Buffett bank stock picks.
Bank of America (BAC)
We’ll start with Buffett’s favorite bank, and his largest bank holding. That would be Bank of America (NYSE:BAC).
Currently, Berkshire Hathaway owns more than one billion shares of BAC stock, a stake that’s valued at $35 billion. Buffett has repeatedly praised Bank of America CEO Brian Moynihan. Further, he has held onto his shares, despite underperformance, even as he has sold his entire stake in many other lenders in recent years. Over the last 12 months, the company’s share price is flat, and it has only risen 16% in the last five years.
Bank of America’s most recent earnings report was short of impressive. The U.S. second largest lender inked a Q4 profit of $2.84 billion, or 35 cents a share. That was below analyst forecasts of $4.38 billion, or 53 cents per share. The lender’s earnings were down 59% from a year earlier. Revenue totaled $21.96 billion, below forecasts that called for $23.7 billion. Overall sales were down 10% from a year ago. Management blamed the poor results on regulatory charges it has been forced to pay since last summer, including a $250 million fine related to junk fees. Regardless, Buffett is still a believer.
American Express (AXP)
While best known as a credit card company, American Express (NYSE:AXP) ranks as America’s 16th largest bank. And, Buffett is a long-term fan of the company, having first invested in AXP stock back in the 1970s.
Today, Buffett owns 151 million shares of AXP worth $32 billion. The financial giant is the third largest position in Berkshire Hthaway’s portfolio after Apple (NASDAQ:AAPL) and BAC. Buffett has maintained the same position in AXP stock for years without touching it.
A notorious dividend collector, Buffett no doubt liked that American Express recently raised its quarterly dividend payment to shareholders by 17%. This came as the company announced that its 2024 outlook improved significantly. Going forward, American Express will pay a dividend to Buffett and other shareholders of 70 cents per share, up from 60 cents previously. The dividend increase was announced along with strong Q4 2023 financial results.
Most impressive was the sunny outlook offered by the company for the year ahead, saying it expects revenue growth of 9% to 11%, ahead of analysts’ forecasts. AXP stock is up 14% year to date (YTD), gaining 23% over the last 12 months.
Citigroup (C)
A bank stock that Buffett had sold but then bought back is Citigroup (NYSE:C). True, his stake in Citigroup is comparatively small at 55 million shares worth $3 billion. Yet, it is notable for being one of the few stocks that Buffett has had a change of heart about. Buffett opened his latest position in C stock in 2022. He was no doubt attracted by the stock’ low price and valuation at the time, as well as efforts by Citigroup CEO Jane Fraser to overhaul the lender and simplify its operations. However, the turnaround strategy hasn’t been without some bumps in the road.
In January, Citigroup reported a $1.8 billion loss for Q4 2023, sending its stock down. A month after the loss was reported, news came that CEO Jane Fraser’s 2023 pay had been raised by 6% to $26 million. Understandably, this drew widespread criticism and placed Fraser on the hot seat. Buffett, who has been a big critic of CEO pay packages, may himself harbor strong feelings about the pay raise given to Fraser. But, so far, the Oracle of Omaha has stuck with C stock and maintained his current position in the lender even though the share price is 13% lower than five years ago. So far in 2024, the stock has gained 5%.
On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
