Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) has a stock portfolio worth about $235 billion, and many of the roughly four dozen stock positions were selected by the Oracle of Omaha himself, Warren Buffett. Not all of Berkshire's stocks look attractive right now, especially with the market at record high levels, but some could be worth a closer look.
This under-followed bank is making big moves
I often refer to Synchrony Financial as the biggest credit card company most people haven't heard of, and for good reason. The company has a portfolio of more than $83 billion in credit card and loan receivables and is the bank behind some of the most popular store credit card products in the world. The Amazon.com store card is a Synchrony product, as are store credit cards from Gap, JCPenney, Lowe's, and dozens more. It is also the company behind the Care Credit healthcare credit card product.
In addition, Synchrony has a fast-growing savings bank, offering high-yield savings accounts with some of the highest APYs in the market. In fact, Synchrony's deposit balances have grown at a 20% annualized rate since 2013.
The company's efficiency ratio (30.8%) is among the best in the entire financial sector, and growth has been quite strong. Plus, the company is doing a great job of establishing new partnerships that could be huge drivers of shareholder value. The upcoming Venmo credit card, which is set to be released in 2020, is one Synchrony product that could be an especially big profit catalyst.
The best part is that Synchrony trades for a rock-bottom valuation of less than seven times TTM earnings, so now could be an excellent time for long-term investors to get in.
This REIT just hit an all-time high, but that doesn't make it expensive
Typically, when I've written about Buffett stocks in the past, my suggestions are generally those companies that have underperformed the market. However, that's not the case with Store Capital. The real estate investment trust (REIT) has generated a 42% total return so far in 2019 and recently hit a fresh all-time high.
If you aren't familiar, Store Capital is a net-lease REIT. This means that it focuses on single-tenant properties (the name "Store" is actually an acronym for Single Tenant Operational Real Estate), and its tenants sign long-term leases that obligate them to cover property taxes, building insurance, and most maintenance costs. Without getting too deep into the business dynamics, the entire goal is to create a stream of predictable income that grows steadily over time.
Store Capital is aggressively growing its portfolio, with 25% year-over-year revenue growth in the third quarter and solid 6.4% adjusted FFO growth (the REIT equivalent of "earnings"). And despite the rapid growth rate, the portfolio of more than 2,400 properties is 99.7% occupied, the best among its peer group.
A double dose of confidence from Warren Buffett
Seritage Growth Properties is a relatively new REIT that has largely flown under the radar. It was created in 2015 for the specific purpose of buying Sears' real estate assets.
To be clear, Seritage has no desire to be a Sears landlord. The business model is to redevelop Sears properties that have become vacant, creating high-value modern properties with mixed-use elements, such as entertainment venues, office space, hotels, apartments, and, of course, retail. Early results have been promising. In the properties Seritage has redeveloped so far, new tenants are paying over 400% of the rent Sears was. And about three-quarters of Seritage's portfolio is yet to be released, leaving a ton of room for value creation.
Technically, Seritage Growth Properties isn't in Berkshire Hathaway's portfolio, at least not in the sense that the other two are, but it is still very much a Buffett stock.
For one thing, Berkshire has a substantial debt investment in Seritage, providing the REIT with a $1.6 billion term loan and an additional $400 million credit facility. Berkshire won't loan its money unless it's virtually certain that it will get its money back, so it's a huge vote of confidence that Berkshire is essentially willing to finance Seritage's entire operation.
As if that weren't enough, you may be surprised to learn that Warren Buffett owns shares of Seritage in his personal stock portfolio. In fact, with a stake of about 5.4% all by himself, Buffett is Seritage's largest individual shareholder.