Many people try to emulate Warren Buffett’s investing strategies, but it isn’t easy to generate the same level of success. One who has done pretty well also happens to be someone that Buffett’s right-hand man Charlie Munger entrusted his savings to: Li Lu. The Chinese-born value investor runs a fund called Himalayan Capital Management, which was started a few decades ago with the help of Munger (now deceased).
This Warren Buffett disciple runs a concentrated portfolio, especially with his United States-listed stocks. In fact, as of the Himalayan Capital fund’s latest update, it had approximately 70% of its American portfolio in just two stocks: Bank of America (NYSE: BAC) and Alphabet (NASDAQ: GOOG). What is it about these two stocks Li Lu likes so much? Should you invest alongside Li Lu and buy these stocks?
1. Bank of America: Diversified global banking
Just under 30% of Li Lu’s portfolio of United States stocks (foreign stock holdings are not required to be publicly reported) is in Bank of America. One of the largest banks in the world offers individuals and commercial customers a diversified set of financial services. It has four reporting segments: consumer banking, wealth management, global banking, and global markets. Each of these divisions generated over $1 billion in net income last quarter and the four together totalled $6.7 billion.
Bank of America continues to add customers to its banking division, onboarding 245,000 accounts last quarter, and it remains one of the premier investment banks in the world. While not a hypergrowth stock, this allows Bank of America to run a consistent operation year in and year out. Li Lu likely owns the stock because it is undervalued and returns capital to shareholders.
The stock trades at a price-to-book (P/B) of just 1. P/B is the most useful valuation metric for a bank, as it tells an investor the price of a stock versus its net asset value. Bank of America currently has a return on equity (ROE) of 9% and has hovered around 8% to 12% in the last few years, which is the return it is getting on this book value. With…
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