In his 2018 shareholder letter, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett candidly announced why he and his investment team have been reluctant to put the company’s record $128 billion in cash to work. Said Buffett:
In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.
However, businesses possessing decent long-term prospects no longer have sky-high valuations, thanks in part to the panic created by the spread of coronavirus disease 2019 (COVID-19).
As of March 7, the World Health Organization had confirmed nearly 102,000 cases of the lung-focused illness, as well as almost 3,500 deaths. With containment and mitigation efforts failing in some regions of the world, there’s real concern about both the loss of life and supply chain disruption for the foreseeable future. These fears are responsible for sending all three of the major U.S. stock indexes deep into correction territory.
But as Buffett has shown in the past, day-traders’ pain is his long-term gain. Buffett has made a living of being greedy when others are fearful and has, most certainly, been putting some of Berkshire Hathaway’s record cash hoard to work over the past two-plus weeks.
Based on filings with the Securities and Exchange Commission (SEC), we already know that Buffett added a little over 976,000 shares of Delta Air Lines (NYSE:DAL) to its portfolio. However, the reporting of this purchase is unique given that Berkshire owns a greater than 10% stake in Delta. Finding out every buy and sell the Oracle of Omaha has been up to won’t be known with certainty until mid-May, when 13F filings with the SEC are made public. But given Buffett’s penchant for value and his recent buying history, I believe the following three stocks were likely added to during this correction.
If there’s one thing Warren Buffett absolutely loves, it’s banks. They’re money-making machines in the eyes of Buffett, and he generally seeks out financial institutions that have a brand name appeal and superior return on assets (ROA). Thus, with JPMorgan Chase (NYSE:JPM) losing 21% of its value over a 12-session stretch (through this past weekend), as well as seeing its longtime CEO Jamie Dimon undergo emergency heart surgery, which likely exacerbated short-term fears, Buffett likely went on the offensive.
Unlike some of Buffett’s largest money-center bank holdings, Berkshire only holds a 1.9% stake in JPMorgan Chase, which offers plenty of room for equity stake expansion. Even with a surprise 50-basis-point federal funds target rate cut from the Federal Reserve, which can adversely affect the net interest income-earning power for banks, Buffett is liable to expand his ownership in JPMorgan Chase given its generally superior 1.37% ROA over the trailing 12 months.
Buffett is also a fan of old-school banking, and that’s what JPMorgan Chase offers. Whereas most money-center banks are closing branches to reduce noninterest expenses, Chase opened more than 70 branches last year in 16 new markets, all while continuing to invest in digital banking and mobile apps that’ll help it reach a new generation of customers.
In short, JPMorgan Chase is going to be just fine (as will Jamie Dimon), and Buffett knows it.
Keeping with the theme of banks, it would be really surprising if the Oracle of Omaha didn’t add to his existing position in U.S. Bancorp (NYSE:USB). Berkshire Hathaway held an… Continue reading at The Motley Fool