First of all,
, chairman of Berkshire Hathaway (
), is gleefully optimistic about America. "Tomorrow's always
uncertain," he said this morning on CNBC. "But the future, the
longer future, is always very certain. And that's what you have
to keep your eye on."
This attitude keeps Buffett building up huge stakes in companies
he deems worthy in the best and worst of times. But what makes
Buffett choose the companies to begin with? There is evidence in
the stock he keeps adding the most to: Wells Fargo (
Wells Fargo (
Wells Fargo has merited membership in
's portfolio since the 1990s, a shining representation of his
long-term philosophy. A steady trend since the first quarter of
2009 is apparent: continual buying. The investor bought
119,940,333 shares cumulatively from then through the third
quarter of 2012. This placed him at a total position size of more
than 422 million shares.
Wells Fargo was one of Buffett's "three important moves" in his
portfolio in 2011, along with purchases of IBM (
) and Bank of America (
). He cited several reasons why in his annual letter: "The
banking industry is back on its feet, and Wells Fargo is
prospering. Its earnings are strong, its assets solid and its
capital at record levels."
Buffett's premier metric for measuring a bank is its return on
assets (ROA). Wells' ROA record before the financial crisis this
decade was a solid 1.6% to 1.8%. After dropping to 0.2% in 2008,
Wells has raised its ROA to 1.2% by 2011, and is on its way back
to business as usual at 1.4% as of the first quarter.
Wells Fargo is also massive - it serves one in three households
in the U.S. through its more than 9,000 shares, 12,000 ATMS and
website, in more than 35 countries. Though it ranked fourth in
assets, it is also the first in market value of its common stock
of all U.S. banks.
Though Buffett requires a high ROA at a bank, he also insists
that it be achieved conservatively. On that front, Wells
maintains a well-controlled operating environment. It has
established ground rules for extending credit to help it manage
credit risk, and closely monitors the performance of its loan
portfolio. It also keeps its interest rate and market risks in
its asset and liability balances within set ranges, while
concurrently enabling ample liquidity and capital levels to fuel
Additionally, Wells continues to slough nonperforming loans from
its assets. Loans 90 days or more past due totaled $1.5 billion
in the third quarter, as opposed to $2 billion at year-end 2011.
Similarly, it fortified its capital position. Equity in the third
quarter increased $6.6 million from the second quarter to $156.1
billion. Its Tier 1 common equity under Basel I reached $105.8
billion, equal to 9.9% of risk-weighted assets. Wells also boasts
a Tier 1 capital ratio of 11.5%, total capital ratio of 14.51%
and Tier 1 leverage ratio of 9.4% to end the third quarter.
Other third quarter results were a testament to its gathering
strength and ability to withstand economic uncertainty. The bank
reported $4.9 billion in earnings, compared to $4.1 billion at
the same time last year. The year's improvements were spurred
largely by balanced net interest and fee income, diversified
sources of fee income, a diversified loan portfolio and strong
underlying credit performance, as well as growth across many of
Third quarter revenue bounded to $21.2 billion from $19.6 billion
at the same time last year. The revenue increase came primarily
from noninterest income growth in mortgage banking, combined with
a mild increase in net interest income. The bank originated 56%
more loans in the third quarter from a year ago.
During the quarter, it bought back about 17 million shares and
paid a 22 cent dividend, up from 12 cents a year previously.
Buffett predicted the dividend increase in his 2010 letter,
saying he expected his largest dividend gain to come from Wells
Fargo, which was forced to lower it though it was "consistently
prospering throughout the worst of the recession."
Buffett seemed to know based on its fundamentals and execution
strategy that Wells Fargo would come through any economic
environment - he made his largest purchases in the past five
years on its biggest stock dips, in the first quarter of 2009,
third quarter of 2009 and third quarter of 2010. But he has been
making his boldest purchases over the past year, as the stock has
climbed almost 23%.
data by GuruFocus.com
As of Thursday, Wells Fargo has a P/E of 10.5, P/B of 1.2 and P/S
See more of Warren Buffett's stock holding in his portfolio here.
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