Investing

Value Investor Chris Davis Cut All of His Bank Stock Holdings Except These Two

Rich Duprey

Published: September 29, 2024 12:32 pm

Famed value investor Chris Davis runs Davis Selected Advisors, a hedge fund with $19.9 billion in assets under management. 

While there are many value investors I admire, Davis is among my favorites. He is the grandson of one of the market’s greats, Shelby Davis, who turned a $50,000 grubstake into a $900 million fortune.

The heir to that investing tradition looks for durable, well-managed businesses trading at a discount to their intrinsic value. He then holds onto them for the long term. The average holding period of stocks in Davis Select Advisors is between five and seven years. He will only sell a stock if it achieves excessive valuations, exhibits declining fundamentals, or there is a negative change to the management team or its strategy.

There are over 100 stocks in his portfolio, but a good percentage of them are financial stocks, including Capital One Financial (NYSE:COF), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC). In the second quarter, Davis trimmed his position in every single bank stock except two. For them, he added more shares to his holdings. Let’s see why they might have merited greater love than their peers.

Key Points About This Article:

• Chris Davis runs the Davis Selected Advisors hedge fund and hails from a family famous for its value investing tradition.
• A significant percentage of Davis’s portfolio consists of bank stocks, but he only added to his position in two of them, while paring back all the others.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

PNC Financial Services Group (PNC)

The first bank Davis bought more of was PNC Financial Services Group (NYSE:PNC), a regional bank located primarily in the east and midwest. It has dramatically increased its size over the years through acquisitions, most recently in 2021 when it acquired Banco Bilbao Vizcaya Argentaria’s (NYSE:BBVA) American banking business.

PNC has proved adept at integrating the commercial and retail banking operations of its targets and is a solid regional bank that was never at risk during last year’s financial market’s crisis that led to the collapse of Silicon Valley Bank and Signature Bank, and saw First Republic acquired by JPMorgan Chase (NYSE:JPM).

By acquiring BBVA, however, PNC sets itself apart from many of its regional banking peers. It has a greater national footprint and could see better than expected fee growth for years to come.

Davis owns $79 million dollars worth of PNC stock, or some 510,000 shares after adding an additional 11,000 shares to his holdings. He bought them at an average price of around $158.50 per share, giving him a a 15% gain on the new tranche. As his average buy-in price stands at $113 a share, he has a nice 62% gain going so far.

Since he was adding to his holdings, it appears he doesn’t see PNC Financial as being at an extreme valuation.

U.S. Bancorp (USB)

The other bank that Davis added to was U.S. Bancorp (NYSE:USB), another regional banking giant. There was some concern about the bank during last year’s crisis and it saw some customers flee with their deposits, but it was short-lived. U.S. Bancorp is in a much better position today.

Part of the worry was its purchase of Mitsubishi UFJ Financial Group‘s (NYSE:MUFG) Union Bank in late 2022. While the acquisition was a bit of poor timing considering the tumult to the industry that followed shortly after, U.S. Bancorp has seen its common equity Tier 1 ratio, or CET1, markedly improve.

The CET1 ratio measures a bank’s capital to its assets with a higher percentage being better. U.S. Bancorp’s ratio dropped from 9.7% to 8.4% after the acquisition, but it has been steadily rebuilding it. At the end of the second quarter, USB’s CET1 ratio stood at 10.3%, an improvement on the 10% it had after the first quarter’s close.

Davis owns 14.2 million shares of U.S. Bancorp stock, valued at $565 million. That makes it one of the billionaire investor’s top 10 holdings. He only added an additional 43,000 shares at around $42 a share. With USB trading around $45 a stub, he has a small gain on the tranche, though his overall buy-in is just under $46 a share so he is essentially breakeven at the moment.