My jaw hit my chest when I heard it.
I sat dumbfounded at Buffett-Fest '09, otherwise known as the Berkshire Hathaway annual meeting. As one of 35,000 value investors who trekked to Omaha, Neb., in early May 2009 to hear the wisdom of Warren Buffett, I nodded my head along with the rest of the crowd for most of the day.
Judge a company by value, not stock price. Nod. America will recover from this financial crisis. Nod. Derivatives are bad. Nod. Wells Fargo is the best stock in the world to go all in on. Huh?
I knew that Warren Buffett was standing by many of the banks in his portfolio -- namely Wells Fargo, US Bancorp (NYSE: USB), and M&T Bank (NYSE: MTB). So I wasn't all that surprised when he said that "[Berkshire] would buy stock in any of the three at current prices."
But Buffett took it oh so much further: "If I had to put all of my net worth into one stock, that would be the stock."
The caveat? He was referring to Wells' March lows, below $9 a share. Shares are hovering in the $20-$25 range at present, so Buffett probably wouldn't be quite so emphatic now.
But still!
I'll buy that Wells Fargo had tremendous upside potential in the single digits (some argue it still does), but the possible downside precludes me from naming Wells Fargo my "if-I-had-to-go-all-in" stock.
As I've said in the past, before it's wise to invest in a bank, you need three things:
With the possible exception of a handful of Wells Fargo employees, no one knows Wells Fargo's balance sheet as well as Warren Buffett. And Buffett has grown very familiar and trusting of Wells' management throughout the years. But even he doesn't know for sure what path the government bailout initiatives will ultimately take.
Now, am I calling his continued investment in Wells Fargo small-f foolish? My head shakes no. His expertise in all three areas I've mentioned exceeds that of most other investors. So while the remaining uncertainty surrounding the government's role in banking has me disagreeing with Buffett's extreme statement, I don't think he's foolish to invest a portion of Berkshire's money there.
However, I will turn to his investing prowess to find my own top investments. Here are three companies Buffett owns that I'd choose over Wells Fargo as an all-in stock -- even at their current not-quite-bargain-basement prices. These three all have products that will still be in demand decades from now, and they have no need for government support:
Company
Moat
Wal-Mart
Scale
Johnson & Johnson (NYSE: JNJ)
Intellectual Property, Brand
Procter & Gamble (NYSE: PG)
Brand
You'll notice that Berkshire has significant holdings in all three of these companies. Wells Fargo isn't even the safest bet in his own portfolio!
Three crossable moats
Just so you don't think I'll give any company with a moat gold star, let's look at some famous examples of companies whose moats aren't all they're cracked up to be.
Company
Moat Continued... |