Wells Fargo & Co (WFC): Buy Warrants In One Of Buffett’s Favorite Companies

Buffett’s Take

Wells Fargo and  Bank of America are not the only two companies whose warrants have earned substantial sums of money for Mr. Buffett. The Oracle of Omaha has played around with warrants in Goldman Sachs and other financial firms; however, his maneuverings in Bank of America and Wells Fargo have been notable for their scale.

Based on Buffett’s seemingly insatiable appetite for Wells Fargo’s stock, it appears that he believes more strongly in the medium-term and long-term potential of that company. His BofA investment may well have been driven by a one-off opportunity that is not likely to be repeated. Buffett’s continued enthusiasm for Wells Fargo seems to have no regard for its stock price. Indeed, the notably cautious investor’s faith in the company speaks volumes.

What’s the Right Move?

Based on current valuations, Wells Fargo’s warrants seem to be a much safer investment. The instruments’ break-even price is just 25 percent higher than Wells Fargo’s current stock price. By comparison, Bank of America’s Class A warrants’ break-even price is about 57 percent higher than the company’s current stock price. In addition, Wells Fargo has the full backing of Warren Buffett/Berkshire Hathaway and is generally regarded to be a safer investment. As such, risk-averse investors may prefer its warrants over Bank of America’s own instruments.

The article Buy Warrants In One Of Buffett’s Favorite Companies originally appeared on Fool.com and is written by Mike Thiessen.

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