In a move that will likely have investors licking their lips, the world's most famous and successful investor, Warren Buffett, has declared that his company will own more Australian shares in five years' time. That could include one or more of our big four banks.
Following yesterday's deal with Insurance Australia Group Ltd (ASX: IAG), where Mr Buffett's company Berkshire Hathaway took a 3.7% stake in the insurer, the legendary investor has vowed to build up stakes in other ASX-listed companies.
Speaking to Fairfax Media, Mr Buffett said,
"If you come back in two or three years, you will find we have got four or five Australian equities", adding, "Banking is something I have looked at. I am comfortable with banks. We have some big positions in US banks. I will certainly be looking at the banks [in Australia]. In looking at banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks".
That could spur a recovery in Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) shares today.
Berkshire Hathaway will use the $2.2 billion it expects to receive each year from the deal with IAG to reinvest back into Australian equities. "There is money to be made in Australian equities over the next 10, or 20, or 30 years," he said.
The key question is whether he sees value in the big four banks. Mr Buffett is well known for his value investing style, and buying quality stocks and businesses at a fair price.
It's arguable whether there's value in the Australian banks at these prices. As the chart below shows, price to book (P/B) ratios have risen strongly since 1992 – the last time Australia experienced a recession.
Source: CapitalIQ
Interestingly, ANZ and NAB are both trading below their long-term P/B averages while CBA and Westpac are trading above their long-term average price to book ratios. That suggests, on one valuation method, that ANZ and NAB are cheap at current prices while CBA and Westpac are expensive. CBA and Westpac are often regarded as the two highest-quality banks out of the four.
I'll take a closer look at the banks and their valuations in a follow-up article this week.
