Berkshire Hathaway’s 13F filing for the third quarter of 2012 showed that the financial sector was Warren Buffett’s favorite area to invest in last summer; Berkshire had more capital invested in financial stocks than in any other sector. See the full list of stocks Berkshire reported owning. We have gone through the filing and picked out the holding company’s five largest positions in financials by market value. Investors shouldn’t buy stocks just because Buffett likes them, but we think that billionaires’ top picks can make good sources of investment ideas for further research. Here are our quick thoughts on Buffett’s favorite financial stocks:
Buffett’s favorite financial stock was large bank Wells Fargo & Company (NYSE:WFC). The market considers Wells Fargo to be a more stable bank than other megabanks such as Citigroup or JPMorgan Chase, and the stock actually trades at a premium to the book value of its equity with a P/B ratio of 1.2. The bank is using its assets quite efficiently, however, as it trades at 9 times forward earnings estimates- very much in line with its peers. Billionaire Ken Fisher’s Fisher Asset Management increased its stake by 70% to a total of 18.6 million shares, making Wells Fargo one if its ten largest holdings (find more of Fisher's stock picks). JPMorgan Chase might be a better buy, but Wells Fargo is certainly priced competitively with other large banks.
American Express Company (NYSE:AXP), the debit and credit card issuer which also provides credit and travel services, was another of Buffett’s favorite stocks with Berkshire reporting a position of over 150 million shares. It’s also priced cheaply, at 13 times trailing earnings, though the company’s recent results have not been particularly good with revenue and earnings about flat last quarter compared to the third quarter of 2011. That value looks about right, but we’d suggest that investors at least look at low-priced peers such as Discover and Capital One before buying the stock.