These Charts Will Change Your Mind About This "Expensive" Warren Buffett Stock

Many people may not know Berkshire Hathaway owns almost 5% of U.S. Bancorp, and if so, they may run from the premium price. Yet one picture reveals why its

May 3, 2014 at 12:30PM

Paying a premium price for anything is always tough to stomach. Yet one picture reveals why investors should be willing to pony up for one big bank. Just like Warren Buffett did.

The eye-opening reality
Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), run by Warren Buffett, is often known for its biggest investments. After all, at last count its four biggest stock holdings made up more than 55% of its nearly $120 billion portfolio of investments.

Yet often lost in that is the reality Berkshire also owns more than 5% of US Bancorp (NYSE:USB), worth almost $3.9 billion, making it the 9th largest holding. Yet the investments of Berkshire Hathaway are really divided into tiers, and as shown in the chart below, it is much close to being the fifth than eleventh: 

Source: Company Investor Relations

Far from a value investment
What people assume about Buffett and Berkshire Hathaway is many of the stock purchases are made because they're value investments. After all, Buffett himself once said:

Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down. 

However no one would suggest US Bancorp is a "value" investment. Its price to tangible-book value sits at 3.0, well above the 2.2 value of the other well-known (and enormous) Buffett bank investment, Wells Fargo. In fact it more than doubles the 1.4 P/TBV that JPMorgan Chase trades at.

Buffett actually began adding to his position nearly 10 years ago, when US Bancorp traded at an even more expensive valuation than where it sits today.

All of this is to say it's tough to believe anyone would call US Bancorp "marked down," either then or now.

One critical reality
Yet the truth is, investors should be willing to pay a premium for the bank itself. A recent slide from its annual meeting reveals exactly why it commands such a lofty value: 

Source: Company Investor Relations

As you can see, of the three critical profitability measures of banks, US Bancorp delivers resounding victory not over just the last year, but in fact the last six. All of this is to say, the premium price is certainly justifiable seeing the ability of the bank to deliver returns to its shareholders.

The Foolish bottom line
The sentence before the Buffett quote mentioned earlier said this:

Long ago, Ben Graham taught me that "Price is what you pay; value is what you get."

And the thing to see about US Bancorp is, while it may trade at an expensive price, it truly delivers value.


Warren Buffett just bought nearly 9 million shares of this company
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Patrick Morris owns shares of Berkshire Hathaway and US Bancorp. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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