If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally thousands of loyal fans who are investors. Known for his long buy-and-hold strategies and his massive portfolio of public and private holdings, Buffett remains one of the preeminent investors in the entire world.
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While many across Wall Street thought the Federal Reserve might tap the brakes Wednesday on increasing the federal funds rate, the reality is that inflation is still soaring, despite the bank liquidity issues and the possibility for continued contagion. The 25-basis-point increase moved the funds rate to 4.75% to 5.00%, the highest since 2007. While many businesses are negatively affected by the increases, some benefit in a big way.

Major money center banks and credit card companies are winners as interest rates creep higher. Banks benefit as interest rates and bank profitability are connected. When interest rates are higher, banks make more money, by taking advantage of the difference between the interest banks pay to customers and the interest the bank can earn by investing. Credit card companies also can benefit, as variable-rate credit cards change the rate customers are charged when rates go higher, as credit card interest rates are based on the prime rate, which is close to the federal funds rate. Rates on cards currently are the highest in decades.

Warren Buffett’s Berkshire Hathaway owns six top companies that will be beneficiaries of the rising rates. All are rated Buy across Wall Street and pay reliable dividends to shareholders. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

American Express

This stock has backed up recently and is offering the best entry point since late last year, despite posting solid quarterly results. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.

The company’s products and services also include merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.

Investors receive a 1.51% dividend. Morgan Stanley has a $186 price target on American Express stock. The consensus target is $187.05, and shares closed on Thursday at $162.76.

This is one of the biggest in the country, and Buffett owns a stunning 1.1 billion of its shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
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Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.

Shareholders receive a 3.26% dividend. Oppenheimer’s $53 target price is well above the $40.43 consensus target, and Bank of America stock closed on Thursday at $26.97.

BNY Mellon

Founded in 1784, this is the oldest company in the Fortune 500, and Warren Buffett has a sizable position. Bank of New York Mellon Corp. (NYSE: BK) provides a range of financial products and services in the United States and internationally. The company operates through the following three segments.

The Investment Service segment offers custody, trust and depositary, accounting, exchange-traded funds services, middle-office solutions, transfer agency, services for private equity and real estate funds, foreign exchange, securities lending, liquidity/lending services, brokerage and data analytics, clearing, investment, wealth and retirement solutions, technology and enterprise data management, trading, corporate trust, depositary receipts, payments, foreign exchange, liquidity management, receivables processing and payables management, trade finance and processing, collateral management and tri-party services.

The Investment and Wealth Management segment provides diversified investment management strategies and distribution of investment products, investment management, custody, wealth and estate planning, private banking, investment and information management services.

The Other segment engages in the leasing, corporate treasury, derivative and other trading, corporate and bank-owned life insurance, renewable energy investment and business exit activities. It serves central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities and high net-worth individuals and family offices.

Bank of New York Mellon stock comes with a 3.42% dividend. The Citigroup price target is $55, and the consensus target is $56.47. Thursday’s last trade was for $43.24 a share.

This top bank has rallied nicely off the lows, and Warren Buffett bought a massive $2.5 billion worth of stock back in the summer of 2022. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations and governments a broad range of financial products and services.
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The company offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. And it operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.

Trading at a still very cheap 7.48 times estimated 2023 earnings, Citigroup stock looks very reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.

The dividend yield here is 4.70%. Oppenheimer’s $75 price target is a Wall Street high. Citigroup stock has a consensus target of $58.32, and shares closed at $43.45 on Thursday.

Mastercard

This continues to be one of the top credit card players in the world. Mastercard Inc. (NYSE: MA) is a technology company that provides transaction processing and other payment-related products and services globally. It facilitates the processing of payment transactions, including authorization, clearing and settlement, as well as delivers other payment-related products and services.

The company offers integrated products and value-added services for account holders, merchants, financial institutions, businesses, governments and other organizations, such as programs that enable issuers to provide consumers with credits to defer payments. Its payment products and solutions allow its customers to access funds in deposit and other accounts, and it offers prepaid programs services, as well as commercial credit, debit and prepaid payment products and solutions.

Mastercard also provides such value-added products and services as cyber and intelligence solutions for parties to transact, as well as proprietary insights, drawing on principled use of consumer, and merchant data services. In addition, the company offers analytics, test and learn, consulting, managed services, loyalty, processing and payment gateway solutions for e-commerce merchants. Further, it provides open banking and digital identity platforms services. The company offers payment solutions and services under MasterCard, Maestro and Cirrus banners.

Mastercard stock investors receive a 0.65% dividend. Morgan Stanley has set its price target at $438, and the consensus target is $431.49. On Thursday, the closing share price was $354.37.

This top credit card issuer is becoming a huge leader in digital pay. Visa Inc. (NYSE: V) operates as a payments technology company worldwide. Its products and services include the following:
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• VisaNet, a transaction processing network that enables authorization, clearing and settlement of payment transactions.
• Credit, debit and prepaid card products
• Tap to pay, tokenization and click to pay
• Visa Direct, a real-time payments network
• Visa B2B Connect, a multilateral B2B cross-border payments network
• Visa Treasury as a Service, a cross-border consumer payments business
• Visa DPS, providing a range of value-added services, including fraud mitigation, dispute management, data analytics, campaign management, a suite of digital solutions and contact center services.
• Cybersource, a payment management platform
• Risk and identity solutions, such as Visa Advanced Authorization, Visa Secure, Visa Advanced Identity Score and Visa Consumer Authentication Service
• Visa Consulting and Analytics, a payments consulting advisory service.

The company provides its services under the Visa, Visa Electron, Interlink, VPAY and PLUS brands.

Shareholders receive a 0.83% dividend. Visa stock has a $288 target price at Morgan Stanley. The consensus target is $261.48. Shares closed at $222.59 on Thursday.

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These six top stocks owned by Buffett’s Berkshire Hathaway should do very well as interest rates continue higher and may be poised to stay at 16-year highs well into 2024. Given the inversion between the two-year note and the benchmark 10-year government paper, it is a good bet that a recession is headed our way in the second half of 2023, so it makes sense to own stocks that will benefit from the surge higher in rates and the fact that they may stay there for some time to come.

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