Billionaire investor Warren Buffett's stake in what he's called one of his "big four" investments just got bigger, and it is raising eyebrows.
On Monday, the chairman of Berkshire Hathaway (BRK.A, BRK.B) announced a 10% stake in Wells Fargo (WFC) via a filing with the Securities and Exchange Commission. Having a 10% stake in a bank triggers a review by the Federal Reserve to ensure the shareholder doesn't exercise a controlling influence over the bank. (To be clear, Berkshire's stake in Wells Fargo is spread across several of its holdings.)
As for Buffett, it appears that he just likes the Action Alerts PLUS holding, Wells Fargo.
The "Oracle of Omaha" noted in his annual letter to shareholders in February that he increased his stake in the San Francisco-based bank to 9.8% from 9.4% during 2015. The recent additional 0.2% stake in Wells Fargo was due in part to the bank's share repurchases.
In Monday's filing, Buffett said Berkshire's holdings in Wells Fargo are not held "for the purpose of or with the effect of changing or influencing the control" of the bank. Instead, it appears he prefers to have a bigger share of companies he likes.
"At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business," Buffett wrote of his investments in Wells Fargo, American Express (AXP), Coca-Cola and IBM (IBM) in his annual letter. "It's better to have a partial interest in the Hope Diamond than to own all of a rhinestone."
Indeed, there may be a lot to like about Well Fargo -- even amid some of the headwinds hitting the financial sectors. Shares of the bank are down 11% year to date while the broader KBW Bank Index (BKX) is down nearly 13% over the same period.
"We agree with Buffett's long-term thesis on Wells Fargo and view it as a best-in-class, high-quality and well-managed domestic bank that has limited capital markets exposure relative to its competitors and has a number of levers to pull on in order to drive EPS growth amid a difficult top-line environment for banks," said Jack Mohr, research director of Jim Cramer's charitable trust, Action Alerts PLUS. He also called attention to the bank's attractive 3.1% dividend.
"It is a name that we believe should be held for the long-term rather than traded for the near-term," Mohr said.
