Warren Buffett called out bank stocks as one of his favorite equity holdings in the U.S. market.
“I feel very good about the banks we own. They’re very attractive compared to most other securities I see,” Buffett told CNBC.
Banks are some of the largest holdings in Berkshire Hathaway’s portfolio, which is worth more than $248 billion.
Goldman Sachs, JPMorgan Chase, Bank of America, BNY Mellon, and U.S. Bancorp were all among Berkshire’s 15 largest stock holdings.
“Banking is a good business if you don’t dumb things on the asset side, I mean, basically,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., said. “The banks we own earn between ... 12% and 16% or so on net tangible assets. That’s a good business, that’s a fantastic business against the long-term bond at 2%.”
Buffett highlighted banks buying back stock as a top reason for why he likes the sector. For example, Bank of America “is buying in a lot of stock every year,” Buffett said, “so our ownership of Bank of America this year will probably go up 7 or 8% without us spending a dime.”
"I’d like to own any business, any good business, where my ownership just goes up 7 or 8% every year without me spending any money and, on top of it, I get a dividend,” Buffett added.
Meanwhile, Buffett said that negative headlines, including on the coronavirus outbreak, do not dampen his view that stocks are a good place for many people to invest for the long-term.
Speaking on CNBC, Buffett said he had no special expertise about coronavirus, but that investors with a 10- to 20-year time horizon and focused on companies' earnings power will find they have "made a good investment" by investing in stocks.
"You certainly can't predict the market by reading the daily newspaper," he said. "If you look at the present situation, ... you get more for your money in stocks than bonds."
Buffett said the U.S. economy was "strong, but a little softer" than it was six months ago, and acknowledged that the coronavirus outbreak had affected many of his Berkshire Hathaway Inc.'s businesses.
He said many of the roughly 1,000 Dairy Queens in China are closed, while those that are open "aren't doing any business to speak of," while companies such as Johns Manville insulation and Shaw carpeting are seeing supply chain disruptions.
"There's always trouble coming," he said. "The real question is where are those businesses going to be in five or 10 years."
Buffett spoke after Berkshire released year-end results on Saturday.
Operating profit fell 3% to $23.97 billion, hurt by a decline in insurance underwriting. Net income totaled a record $81.42 billion, aided by unrealized gains in stock investments such as Apple Inc.
© 2023 Thomson/Reuters. All rights reserved.