Five Banking Stocks Billionaires Like

With the Federal Reserve having raised interest rates for the first time since 2007, many investors are rotating into banking stocks, many of which stand to benefit from the rising rates by realizing wider net interest margins and higher returns on capital. With many banks also trading at a reasonable price-to-book ratios and yielding attractive dividends, we decided to put a list of banking stocks that billionaires like the most. In this article, we take a closer look at Wells Fargo & Co (NYSE:WFC), Bank of New York Mellon Corp (NYSE:BK), JPMorgan Chase & Co. (NYSE:JPM), Ally Financial Inc (NYSE:ALLY), and Bank of America Corp (NYSE:BAC) and their billionaire holders.

Moreover, we will also examine relevant hedge fund sentiment toward the equities. In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8000 funds in operation at present, Hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds managed to outperform the market on the long side of their portfolio. In fact, the 15 most popular small-cap stocks among hedge funds returned 102% since the end of August 2012 and beat the S&P 500 Index by 53 percentage points (see the details here).

#5 Bank of America Corp (NYSE:BAC)

– Number of Billionaire Holders (as of September 30): 9
– Total Value of Billionaire Holdings in the Stock (as of September 30): $1.21 billion

Bank of America Corp (NYSE:BAC) has been range-bound for a long time, having failed to break past the $18 level on several occasions but holding its tangible book value of over $15 a share. Given time, however, many bulls think Bank of America will break past $18 and trade closer to its book value of $22 as the bank’s legacy legal and mortgage costs are wound down and the rising interest rates increase Bank of America’s return on capital. Among the nine billionaires holding shares of BAC is Ken Fisher of Fisher Asset Management.

#4 Ally Financial Inc (NYSE:ALLY)

– Number of Billionaire Holders (as of September 30): 9
– Total Value of Billionaire Holdings in the Stock (as of September 30): $1.46 billion

Mark Palmer of BTIG Research thinks the Federal Reserve’s approval for Ally Financial Inc (NYSE:ALLY) to redeem $1.29 billion of its Series G preferred shares will remove a major overhang and be a potential catalyst that prompts many investors to buy the stock. With shares trading at 0.64 times book value, any positive catalyst is certainly good news. As a bonus, Ally management has also said they are looking to do a share repurchase program and/or pay a dividend in 2016. Billionaire Richard Perry’s Perry Capital owned 22.6 million shares of Ally Financial at the end of September.

#3 JPMorgan Chase & Co. (NYSE:JPM)

– Number of Billionaire Holders (as of September 30): 9
– Total Value of Billionaire Holdings in the Stock (as of September 30): $1.77 billion

Although Fintech startups will disrupt many smaller banks in the near future, they won’t threaten JPMorgan Chase & Co. (NYSE:JPM) any time soon. Led by Jamie Dimon, the bank is aggressively pursuing innovative technologies and ‘internal working groups have made significant advances this year and will be provided even more freedom to develop market leading platforms in 2016.’ Among the new technologies JPMorgan is pursuing is Blockchain, which can lower the bank’s costs substantially. Hedge fund sentiment towards, JPMorgan has remained stable, with the number of funds long the stock unchanged at 100 quarter-over-quarter.

#2 Bank of New York Mellon Corp (NYSE:BK)

– Number of Billionaire Holders (as of September 30): 11
– Total Value of Billionaire Holdings in the Stock (as of September 30): $3.36 billion

Bank of New York Mellon Corp (NYSE:BK) had a pretty good third quarter, with EPS of $0.74 on revenue of $3.8 billion. Although sales missed the estimates by $70 million, Bank of New York Mellon’s EPS exceeded expectations by $0.03 per share. The bank also bought back 15.8 million shares. Although shares are only up 0.79% year-to-date, the stock has plenty of upside, as analysts have a consensus price target of $47.80. Andreas Halvorsen’s Viking Global owned 10.29 million shares at the end of the third quarter.

#1 Wells Fargo & Co (NYSE:WFC)

– Number of Billionaire Holders (as of September 30): 13
– Total Value of Billionaire Holdings in the Stock (as of September 30): $26.45 billion

Because of its low cost of funding and excellent returns on capital, Wells Fargo & Co (NYSE:WFC) has grown from a medium-sized regional bank to one of the world’s largest financial firms in just two decades. The bank’s quarterly dividend and stock price have appreciated by seven and nine times, respectively, in the same time frame. Wells Fargo got to where it was due to its conservative culture. Because it pays a lot of attention to loan quality and doesn’t trade the typical Wall Street derivatives, Wells Fargo sidestepped much of the havoc during the Great Recession and has rebounded quickly from 2008/2009. Given Wells Fargo’s dividend yield of 2.79% and its slow and steady culture, it’s not surprising that 13 billionaires, including Warren Buffett of Berkshire Hathaway, are bullish on the company.

Disclosure: none