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Warren Buffett's Latest $7 Billion Investment Win

By Matthew Frankel, CFP® - Nov 22, 2016 at 8:23AM

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Berkshire Hathaway's bank stocks have soared lately. Could there be more upside ahead?

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Billionaire investor Warren Buffett was an outspoken Hillary Clinton supporter, but the stock portfolio of his company, Berkshire Hathaway (BRK.A 1.35%) (BRK.B 1.26%), has been a major beneficiary of Donald Trump's election. The market as a whole is at record highs, but bank stocks have been some of the best performers, and Berkshire owns plenty. Here's a look at how Buffett's bank stocks have done since the election, why they've done so well, and whether they're still good buys today.

Buffett's bank stocks

Berkshire Hathaway's stock portfolio contains several bank stocks, including large stakes in American Express (AXP -0.03%) and Wells Fargo (WFC 0.68%). All of Berkshire's bank stocks have performed quite well since the election, as you can see here:

Bank Stock

Number of Shares

Price on 11/7/2016

Price on 11/18/2016

American Express

151,610,700

$67.00

$71.00

Bank of New York Mellon

21,136,712

$44.03

$47.44

Goldman Sachs

10,959,519

$181.48

$210.35

M&T Bank Corp

5,382,040

$124.88

$141.26

U.S. Bancorp

85,063,167

$44.92

$49.23

Wells Fargo

479,704,270

$45.40

$52.82

Holdings as of Sept. 30, 2016. Data sources: Company SEC filings.

In addition, Berkshire holds warrants to buy 700 million shares of Bank of America (BAC 1.08%) stock, which has climbed from $17.01 to $20.00 in the post-election rally and has been one of the top performers in the financial sector. Buffett has said that Berkshire is likely to purchase the shares just before the warrants expire, and that the investment is one that Berkshire "values highly."

Including the Bank of America investment, the price gains in the chart show that Berkshire has gained a total of $7.1 billion since the election from its bank stocks alone. This is a big contributing factor to the 7.4% post-election gain in Berkshire Hathaway's stock price.

Why have banks done so well lately?

There are a couple of election-related reasons that banks have rallied. And to be thorough, it's not just the election of Donald Trump. It's the combination of a Republican president and Republican control of both houses of Congress that is viewed as a positive catalyst for the industry.

First, Trump has pledged to eliminate regulations, and few industries are as burdened with regulation as the banking industry. Trump has pledged to either ease or repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed in the wake of the 2008 financial crisis with the intention of preventing any more major financial institutions from collapsing, as well as protecting consumers. The regulations imposed by the act are costly to banks, and are seen by many as an overreaction to the crisis.

Additionally, Trump's planned tax cuts and increased spending could be good for banks in several ways. One is the expectation that lower taxes will translate into more money in consumers' paychecks and bank accounts. Another is the fact that Trump's policies are pro-growth, which could lead to higher interest rates, which in turn would translate into better profit margins for banks.

As banking analyst Mike Mayo said in a recent CNBC interview, "Now the industry is transitioning from defense to offense." Separately, analysts at FBR Capital Markets have said that Trump's agenda could result in the most favorable macroeconomic environment for financials since before the crisis.

Too late to get in?

The bank stocks represented in Berkshire's portfolio are certainly not as attractive as they were a few weeks ago but could still be good buys from a long-term perspective. I doubt that Buffett will sell any of these stocks in the wake of the recent rally, and I wouldn't be surprised to see Berkshire add to some of these positions.

In a nutshell, if you have a reasonably long investment time frame (say, five years or more), the effects of a Trump presidency could be many times that of this recent rally, especially if his economic growth plans have their desired effect.

Matthew Frankel owns shares of American Express, Bank of America, Berkshire Hathaway (B shares), and Goldman Sachs. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of Wells Fargo. The Motley Fool recommends American Express. 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.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$461,300.00 (1.35%) $6,130.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$306.65 (1.26%) $3.83
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$36.64 (1.08%) $0.39
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$46.06 (0.68%) $0.31
American Express Company Stock Quote
American Express Company
AXP
$165.35 (-0.03%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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