If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy-and-hold strategies and his massive portfolio of public and private holdings, Buffett remains one of the preeminent investors in the entire world.
With the Federal Reserve pausing the rate hike cycle in June, but promising that at least two more increases in the federal funds rate are possible, the prospects for a recession remain front and center. With both the Nasdaq and the S&P 500 hitting 52-week highs recently, it makes sense for investors to book profits and shift capital to safer ideas, especially with the next Fed meeting just three short weeks away.
With some of the incoming economic data still remaining hot, in addition to the continuing solid jobs numbers and the potential for more negative inflation data next week, we screened the Berkshire Hathaway portfolio looking for companies that should benefit from a likely 25-basis-point July hike. Seven top stocks fit the bill, and all are rated Buy across Wall Street.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
The bank with no buildings may be poised to have a strong second half of 2023. Ally Financial Inc. (NYSE: ALLY) is a digital financial services company that provides various digital financial products and services to consumer, commercial and corporate customers primarily in the United States and Canada. It was formerly known as GMAC and changed its name in May 2010.
Its Automotive Finance Operations segment offers automotive financing services, including providing retail installment sales contracts, loans and operating leases, term loans to dealers, financing dealer floor plans and other lines of credit to dealers, warehouse lines to automotive retailers and fleet financing. It also provides financing services to companies and municipalities for the purchase or lease of vehicles and vehicle-remarketing services.
The Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel and commercial insurance products directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products, and it underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
The Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans originated by third parties, as well as direct-to-consumer mortgage offerings.
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The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies, leveraged loans and commercial real estate products to serve companies in the health care industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services.
Investors receive a 4.44% dividend. Citigroup has a $40 target price on Ally Financial stock. The consensus target is just $31.47, and the stock closed on Thursday at $26.29.
This stock has backed up recently and is offering the best entry point since late last year, despite posting solid second-quarter results. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.
The company’s products and services also include merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.
Shareholders receive a 1.39% dividend. Morgan Stanley’s price target is $188, and American Express stock has a consensus target of $183.50. The shares closed on Thursday at $170.94.
Bank of America
The company posted solid first-quarter results, and interest rate increases are always welcomed by banks. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains. Buffett owns a billion shares of the bank.
Bank of America stock comes with a 3.11% dividend, which the bank is raising by 9%. Oppenheimer’s $47 target price is well above the $35.45 consensus target and Thursday’s close at $28.28.
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Founded in 1784, this is the oldest company in the Fortune 500, and Buffett has a sizable position. Bank of New York Mellon Corp. (NYSE: BK) provides a range of financial products and services in the United States and internationally. The company operates through the following three segments.
The Investment Service segment offers custody, trust and depositary, accounting, exchange-traded funds services, middle-office solutions, transfer agency, services for private equity and real estate funds, foreign exchange, securities lending, liquidity/lending services, brokerage and data analytics, clearing, investment, wealth and retirement solutions, technology and enterprise data management, trading, corporate trust, depositary receipts, payments, foreign exchange, liquidity management, receivables processing and payables management, trade finance and processing, collateral management and tri-party services.
The Investment and Wealth Management segment provides diversified investment management strategies and distribution of investment products, investment management, custody, wealth and estate planning, private banking, investment and information management services.
The Other segment engages in the leasing, corporate treasury, derivative and other trading, corporate and bank-owned life insurance, renewable energy investment and business exit activities. It serves central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities and high net-worth individuals and family offices.
The dividend yield here is 3.35%. The $58 Citigroup price target is a Wall Street high. The consensus target is $53.47, and Bank of New York Mellon stock closed at $43.82 on Thursday.
This top bank has rallied nicely off the lows, and Warren Buffett bought a massive $2.5 billion worth of stock back in the summer of 2022. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations and governments a broad range of financial products and services.
The company offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. And it operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still cheap 7.0 times estimated 2023 earnings, Citigroup stock looks quite reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.
Citigroup stock investors receive a 4.50% dividend. Oppenheimer has set its price target at $78, a Wall Street high. The consensus target is $57.39, and shares closed on Thursday at $45.38.
This continues to be one of the top credit card players in the world. Mastercard Inc. (NYSE: MA) is a technology company that provides transaction processing and other payment-related products and services globally. It facilitates the processing of payment transactions, including authorization, clearing and settlement, as well as delivers other payment-related products and services.
The company offers integrated products and value-added services for account holders, merchants, financial institutions, businesses, governments and other organizations, such as programs that enable issuers to provide consumers with credits to defer payments. Its payment products and solutions allow its customers to access funds in deposit and other accounts, and it offers prepaid programs services, as well as commercial credit, debit and prepaid payment products and solutions.
Mastercard also provides such value-added products and services as cyber and intelligence solutions for parties to transact, as well as proprietary insights, drawing on principled use of consumer, and merchant data services. In addition, the company offers analytics, test and learn, consulting, managed services, loyalty, processing and payment gateway solutions for e-commerce merchants. Further, it provides open banking and digital identity platforms services. The company offers payment solutions and services under MasterCard, Maestro and Cirrus banners.
The dividend yield is just 0.60%. Mastercard stock has a $440 price target at Morgan Stanley. That compares with a $433.06 consensus target and Thursday’s close at $393.14.
This top credit card issuer is becoming a huge leader in digital pay. Visa Inc. (NYSE: V) operates as a payments technology company worldwide. Its products and services include the following:
- VisaNet, a transaction processing network that enables authorization, clearing and settlement of payment transactions.
- Credit, debit and prepaid card products
- Tap to pay, tokenization and click to pay
- Visa Direct, a real-time payments network
- Visa B2B Connect, a multilateral B2B cross-border payments network
- Visa Treasury as a Service, a cross-border consumer payments business
- Visa DPS, providing a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions and contact center services.
- Cybersource, a payment management platform
- Risk and identity solutions, such as Visa Advanced Authorization, Visa Secure, Visa Advanced Identity Score and Visa Consumer Authentication Service
- Visa Consulting and Analytics, a payments consulting advisory service.
The company provides its services under the Visa, Visa Electron, Interlink, VPAY and PLUS brands.
Shareholders receive a 0.77% dividend. The Raymond James target price is $282. The posted consensus target is $267.89. And $238.88 was Thursday’s closing share price for Visa stock.
These seven top stocks, many of which have underperformed during the massive AI tech rally, are owned by Warren Buffett’s Berkshire Hathaway that should do very well as rates continue higher, and may be poised to stay at 16-year highs well into 2024. Given the inversion between the two-year note and the benchmark 10-year government paper, it is a good bet that a recession is headed our way in the second half of 2023, so it makes sense to own stocks that will benefit from the surge higher.
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