Berkshire Hathaway (BRK-B) has been overweight on banking and financial stocks. In the previous article, we noted that according to the most recent filings, Berkshire Hathaway is Bank of America’s (BAC) largest shareholder. The company is also the largest shareholder in Wells Fargo (WFC).
In the third quarter, Berkshire sold some shares of Wells Fargo while adding some shares of Bank of America. Berkshire also added JPMorgan Chase (JPM) to its portfolio in the third quarter.
Wells Fargo has been hit with several fraud and misconduct charges recently. While Berkshire has been gradually selling Wells Fargo shares, it’s been doing so with the intent of keeping its stake in the bank below 10% to avoid regulatory hurdles. During last year’s annual shareholder meeting, Warren Buffett and Charlie Munger reiterated their faith in the company.
Wells Fargo fell 24% last year. In comparison, Citigroup (C) saw a fall of 30%. Looking at its valuation, Wells Fargo has a PE multiple of 9.0x its 2019 consensus earnings estimate. The stock had a price-to-book value of 0.82x at the end of the third quarter.
Wells Fargo has received a mean consensus price target of $61.26, which represents a potential upside of 33% over its December 31 closing price. Wells Fargo has received “strong buy” ratings from seven analysts, while 11 have given it “buy” ratings. Nine analysts have rated the stock as a “hold,” and the remaining four analysts polled by Thomson Reuters on December 31 have rated it as a “sell” or lower.
While Buffett has an enviable stock selection record, following him isn’t a sure bet. Read Following Warren Buffett Might Not Always Yield Profits for more analysis.