U.S. Bancorp (NYSE:USB) reported its financial results for the second quarter this morning. The financial services holding company reported earnings per share of $0.80, 2.5% more than its earnings in the same quarter last year, while also meeting the consensus forecast of $0.80 per share for the quarter from analysts. U.S. Bancorp reported revenue of $5 billion for the quarter, slightly lower than the $5.2 billion it pulled in during the same period in 2014. Some of the key highlights in the report included its return on average assets rate of 1.46%, return on average common equity of 14.3%, and year-over-year average total loan growth of 4%. As well, the company reported strong new lending activity of $54.2 billion during the quarter, while average total deposits grew by 8.9% and net interest income growth was at 9.1%. The company also announced that it will be returning 76% of capital generated to shareholders through dividends and the buyback of 14 million common shares. Many analysts’ have reiterated their ratings and increased their price target on U.S. Bancorp (NYSE:USB) in the last few weeks, expecting the company to meet or exceed earnings expectations, which it has managed to do. The company, which ranks as one of the value investments of legendary trader Warren Buffett, is flat in pre-market trading after trading up by over 2% earlier in the pre-market.
As mentioned, hedge fund manager Warren Buffett continues to remain bullish on U.S. Bancorp (NYSE:USB), along with several other major investors. At the end of March, a total of 42 of the hedge funds tracked by Insider Monkey were holding long positions in the stock, with total investment of $5.56 billion, 1.4% more than the aggregate capital invested by 37 hedge funds at the end of 2014. Considering the fact that U.S. Bancorp (NYSE:USB) stock dropped around 4.5% during the January – March period, we can say that hedge funds opted to pour more money into the stock during the first quarter on its weakness, expecting a turnaround. Shares are up slightly since the end of the first quarter.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at the insider activity at U.S. Bancorp (NYSE:USB), there were no insider purchases in the first half of the year, but there were a few insider sales. Chairman & CEO at U.S. Bancorp (NYSE:USB), Richard Davis sold around 550,000 shares and Vice Chairman & COO Andrew Cecere sold around 250,000 shares in February, among other sales.
Keeping this in mind, let’s take a glance at the new hedge fund activity encompassing U.S. Bancorp (NYSE:USB).