Much ink, both literal and virtual, has been spilled extolling the virtues of investing like Warren Buffett. The man is widely considered -- rightfully so, in this Fool's opinion -- to be the greatest investor of our time. And at nearly 90 years of age, he still runs Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), the behemoth conglomerate he's built over the past half-century, minting many thousands of millionaires and a large number of billionaires along the way.
Because of his incredible record of success, it's not a terrible idea to look to Berkshire's own portfolio for investing ideas -- not to copy the Oracle of Omaha, per se, but to identify opportunities in stocks that have already been vetted by one of the best.
Right now, American Express (NYSE: AXP) and Wells Fargo (NYSE: WFC) represent incredibly good value for long-term investors. Moreover, the two made up more than 19% of the Berkshire equity portfolio at the start of the year. Combined, they were worth more than $34 billion to Berkshire. That's a lot of skin in the game on these two financial giants.
Two wonderful companies at fair prices. Image source: Getty Images.
There's no doubt that Buffett is a big fan of both AmEx and Wells Fargo. Let's take a closer look at what makes them attractive for individual investors like you and me.
A lending giant with huge tailwinds, and it's dirt cheap
Ecommerce and global growth are positive trends for American Express. Image source: Getty Images.
Best known for its namesake charge and credit cards that generate the lion's share of its earnings, American Express is well positioned for many years of growth. Last year, the company issued 12 million new cards, added 1 million new merchant locations, and grew billed business at near-double-digit rates.
The end result was American Express' most profitable year ever. Adjusted earnings per share were 24% higher than in 2018. Yet its shares are cheap, historically speaking, trading for 14.5 times 2018 earnings and between 13.5 and 14.5 times company guidance for 2019 earnings. In short, it's cheap.
Add in the long-term prospects as commerce becomes ever more cashless, and as the world's middle class population continues to grow, and American Express is a textbook "Buffett" buy today.
Come for the dividend; stay for the turnaround
After many years as the poster child for what a high-quality and well-run financial institution should look like, Wells Fargo has become one of the most hated banks in America. A litany of questionable activities in its branches, ranging from the unauthorized opening of accounts and charging for services customers didn't want or need, has caused Wells to pay millions in fines.
But the biggest slap the mega-bank got from regulators was being handcuffed at its current asset size, and not allowed to grow assets any bigger than the size it was at the end of 2017. And right now, regulators aren't offering any hints to when it will remove Wells' growth restriction.
Even with asset growth handcuffed, Wells management is delivering per-share growth for investors. Image source: Getty Images.
So why would an investor even consider buying a bank under such restrictions? In short, Wells is cheap, pays a very high dividend yield compared with its peers, and continues to deliver superb profits that management is putting to work to enrich investors even as they continue to move the bank further from its troubled past.
And even if Wells can't use its profits to grow its assets, management is delivering per-share value, with a strong dividend yielding almost 3.4% at recent prices, and steadily buying back a lot of stock. Last year, the company repurchased almost 7% of shares -- good capital allocation considering Wells' restrictions on asset growth, and the deflated valuation shares continue to trade for.
At recent prices, Wells shares are down almost 15% from their 52-week high and now trade for less than 12 times 2018 earnings and 10 times 2019 earnings estimates. By any reasonable measure, it's dirt cheap.
Bottom line: The 3.4% dividend alone makes it attractive, and the cheap valuation and management's actions to deliver value to shareholders while waiting on regulators to take off the cuffs make it a steal at current prices.
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