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 Buffett was standing by many of the banks in
his portfolio -- namely Wells Fargo,
US Bancorp , and
M&T Bank . 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 Fargo's March lows,
below $9 a share. Shares are hovering in the mid to high
$20's 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 with
and trusting of the company's  management
throughout the years. But even he doesn't know for sure what
path the government bailout and regulatory 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 lingering 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
alternatives. 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
Intellectual property, brand
Procter & Gamble
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 a gold star, let's look at some famous examples
of companies whose moats aren't all they're cracked up to
be.
Company
Moat
Comcast
Barriers to entry Continued... |