The Omaha Oracle had a busy quarter.
According to his latest 13F pass, Warren Buffett has settled down approximately one third of his money in new investments in the first three months of the year.
As always, Buffett’s biggest swings are remarkable. However, his decision to sell most of the bank’s shares while adding Citigroup (C) to Berkshire Hathaway’s (BRK) portfolio puzzled Wall Street.
That is why this contradiction has attracted so much attention.
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Eager to escape the gloomy stock market? Unfortunately, “Cash is not a safe investment,” said Ray Dalio, founder of the largest hedge fund in the world. “This is not a safe place because it will be taxed by inflation.” Once the consumer price index reaches a 40-year high of 8.6% in May, it will have to be creative to find a strong return.
Buffett loves banks
Buffett is well acquainted with banking and financial services. He believes that the business is relatively easy and can be extremely profitable if managed well.
“If you can just stay away from following fashion trends and really make very bad loans, banking is a very good business in this country,” he said. he said Investors at Berkshire Hathaway in 2003
How about the global financial crisis of 2008? Buffett began shopping during this time, taking stakes in JP Morgan (JPM) and Goldman Sachs (GS).
For several years, the big banks have been the largest holdings in Berkshire’s portfolio. In 2009, he even said that Wells Fargo (WFC) was his investment with the highest conviction.
“If I had to invest all my net worth in one share, it would be the shares,” he said he said Berkshire shareholders.
Catching Buffett on a rebound
This year, Buffett has completely given up all these investments. Only a few banks remain in the portfolio.
This does not mean that the love affair with financial services is over.
In fact, Buffett added a new bank to his collection this year: Citigroup. In the first quarter of 2022, it added 55 million Citigroup shares to Berkshire’s portfolio.
The stake is now worth $ 2.5 billion, making it the 16th largest holding in the basket.
The bet seems to be based on a reverse story.
The transformation of Citigroup
Citigroup lags behind its peers. In the last five years, stocks have fallen by more than 28%.
Compare this to Bank of America’s 37% return for the same period. Even the SPDR S&P Bank ETF (KBE) rose 1.9%.
Now the company is trying to make a turnaround to catch up. Last year, the Citigroup board appointed Jane Fraser as the new CEO, making her the first woman leader of a major US bank.
Fraser’s strategy involves focusing on the more profitable business segments. Citigroup sells or closes operations in Mexico, Australia, the Philippines, South Korea and elsewhere.
Citi shares do not fully reflect this new strategy.
Citigroup shares are currently traded at a price / earnings ratio of 5.6. Its price-to-book ratio is 0.52. This is significantly lower than the industry average of 9.45 and 1.12, respectively.
Simply put, stocks are cheap.
If the new management team can streamline operations and increase profitabilitythe bank’s valuation may catch up with competitors.
Meanwhile, a rising interest rate the environment must provide another headwind.
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This article provides information only and should not be construed as advice. It is provided without any warranty.