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Warren Buffett would happily start building a position in Wells Fargo (WFC) at $56/share, writes...

Warren Buffett would happily start building a position in Wells Fargo (WFC) at $56/share, writes The Brooklyn Investor, applying the Buffett/Munger 10% pretax return standard to the $29.9B the bank earned in the last 12 months. At the current share price near $44, the company can be had for a 12.8% pretax yield - no wonder Buffett's been buying more all year. Applying the same analysis to JPMorgan (JPM) finds the Oracle would gladly begin buying that bank at $84/share, 50% above Friday's close. It's a pretty safe bet Buffett hasn't sold any of his stake.
Comments (12)
  • 13761362
    , contributor
    Comments (382) | Send Message
     
    i have a permanent twitch that resulted from the claim "recession proof banking" many years ago. i apologize for my strident insolence.
    21 Jul 2013, 10:10 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (848) | Send Message
     
    To all the people who have blasted the bank stocks on this site over the last 4 years, please re-read the article above. If you still don't understand it, re-read it again. I own WFC, JPM and C (along with AIG and PRU). Since the market bottom in March 2009, I've been slowly buying these names on EVERY dip and twice as heavy on any silliness like the "London Whale" episode.

     

    I'm not trying to be condesending, but this article above is basically a blueprint for making money. It's the easiest to understand and most straightforward way to make money in this current stock market. Whether you politically agree or not (it doesn't matter), the Federal Reserve is basically backstopping these financial institutions and allowing them to generate cash. Period. What more guarantee does anyone need? If someone told you that there was $100 bill laying on the ground on the other side of the street, you'd walk over and pick it up, wouldn't you?

     

    2+2 will ALWAYS equal 4. If interest rates continue to rise, these financial stocks will explode to the upside.
    21 Jul 2013, 10:10 PM Reply Like
  • Deja Vu
    , contributor
    Comments (1248) | Send Message
     
    What makes you so sure the shareholders are backstopped? Why do you not think that like AIG shareholders you may be wiped out, even if these TBTF monsters are resuscitated?
    21 Jul 2013, 11:41 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (848) | Send Message
     
    In March 2009, the Obama administration released the results of the bank stress tests. Basically that was the announcement that "these banks will not fail". With the exception of the European crisis, it's been pretty much a straight line up since then. Unless you think that the future economic situation for the financial institutions is going to be WORSE then 2008, then the game plan is pretty apparent. I personally don't think that is going to happen. And if you don't think AIG is a more stable company then they were in 2008, well... you just haven't been paying attention.
    22 Jul 2013, 09:06 AM Reply Like
  • Swisser998
    , contributor
    Comments (133) | Send Message
     
    JPM and WFC are at ridiculously low P/E ratios. Especially with the implicit government backstop. Might as well take advantage.
    21 Jul 2013, 10:35 PM Reply Like
  • muldoon1959
    , contributor
    Comments (23) | Send Message
     
    I'm not happy about the TBTF world we live in. I'm not happy about global debt levels, central bank planned economies, or the general macro forecast. Regardless, I'm long both JPM and WFC. These institutions are back-stopped, plain and simple. They don't call them "too big to fail" for nothing. Do I like it? No. Is that going to prevent me from making money? No.
    21 Jul 2013, 10:53 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (848) | Send Message
     
    I agree with you 100%. However, you'd be surprise at how rare that sentiment is @muldoon1959.
    22 Jul 2013, 09:08 AM Reply Like
  • ocala
    , contributor
    Comments (72) | Send Message
     
    My only regret is that my investing "rules" only permit me to commit 20% of my funds to one sector even when they are holding a 2 for 1 sale.
    21 Jul 2013, 11:09 PM Reply Like
  • Ohrama
    , contributor
    Comments (512) | Send Message
     
    Yes, it is a very good investment with the price at a 10 year high and perhaps the time for next recession close by (we have been in this print the money induced expansion for nearly 5 years!). At $85B bond purchase per month, how many more months or years we can continue with our shell game?
    21 Jul 2013, 11:24 PM Reply Like
  • Matthew Lewis
    , contributor
    Comments (344) | Send Message
     
    Lots of wisdom in that article. Great read.
    21 Jul 2013, 11:39 PM Reply Like
  • abdullah999
    , contributor
    Comments (249) | Send Message
     
    The Brooklyn investor ain't no Warren Buffet.

     

    First of all, stocks are the present value of ALL future cash flows, not just one year. To take last year's earnings number for JPM / WFC and to computer a target price based on a hypothetical (high) future earnings figure is not sound investment analysis. Banks are levered opaque institutions and carry a lot of risk. Judging from people's comments, when you think a trade is that easy and obvious that others are dumb not to do it, you are ready to find out why investments such as banks are labeled "high risk". There is no backstop for anything in the stock market. Risk is highest when people think it is non-existent.

     

    I like how the Brooklyn investor (perhaps correctly) derides people who buy / sell individual stocks based on macro concerns. But his analysis is very similar to coming up with an operating earnings number for next year, slapping a multiple on it, and calling it your price target. If it were that easy, we'd all be billionaires (including the Brooklyn investor).
    22 Jul 2013, 01:57 AM Reply Like
  • Phr3d
    , contributor
    Comments (231) | Send Message
     
    I agree with the backstop issue, hard not to - I am Not invested in the other stocks mentioned because I prefer to look at the company. The London Whale 'present' of a drop in price/sh ignores the effect on JPM as a company And the negative effect on the wounded sector in question. You definitely made money, but encouraged -epic- bad company management, and may encourage it in the sector.

     

    Banks -are- sound investments, when they are run in a manner that is relatively easy to understand (yes, I hear you Atlantic Monthly readers chafing at the bit and screaming "exposure!") AND if the bank has historically withstood extreme-negative market conditions (ignoring the crash altogether).

     

    Making money is item one, so I cannot fault C & JPM investors, no brainer there. But I will not invest there, as business practice is Everything regarding the 'sound investment' aspect.

     

    Make your money and get the hell out? sure, buy some C.
    Keep it forever? prolly gonna go with a company not instrumental in the downfall of the sector.

     

    admitting defeat and using the useless media's acronyms:
    C=TBTF -- there were No others. guvm't coerced the BAC nuke, or they would have sailed it as well as WFC et al, even as beat up as BAC was at the time. (Wachovia and WAMU were in trouble long before the 'pop', and WAMU simply didn't have much to bring to the merger table).
    hence, C=TARP -- C's no-brainer returns held many large and regional banks' investment-level to a hell-fire that they did not help to create (many were sound investments), only that they stupidly (and Hugely) invested in C's no-brainer returns. If C goes, stand back for the dominoes.. hence, TBTF. If you GOTTA save AIG, well, duh.. you gotta save C, or what was the point? i.e., we coulda' let a hunnert WAMU's swim wit der fishes and still cruised, That's how heavy the 'no-brainer' large-institution investment in C was by that point.

     

    I have heard that C employees are regaining some self-respect, as they continue their search for gainful employment anywhere else.
    But nuthin' touches a team that successfully walked the coals of the financial catastrophe of modern times.

     

    and NO ONE will back the 'saving' of WFC, Ever... even without Dick - certainly, politically it would be disastrous, but der guvm't just don't LIKE them, lol.

     

    end rant (and apologies - I always hate reading these poorly written, spur-of-the-moment rants of mine, but my gawd, weren't some of you awake at the time?)
    M H (no-brainer) O
    23 Jul 2013, 02:34 AM Reply Like
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