Warren Buffett - Banking Stocks

Eddie, in the last few months, increased his holdings from more than 24.8 million shares to just under 27.8 million shares.  Citigroup hovered between $45 and $50 per share during the time he was adding to his portfolio.  This represents an investment of more than $135 million dollars!

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Both of these giants of investing have recently increased their holdings in bank stocks, and I can see why.  These are huge companies with great brands, and solid businesses.  The likelihood of bankruptcy is almost nonexistent, but the current outlook due to the subprime crisis, is horrible.  Every news item is bad, earnings are suffering, and the stocks are trading at levels not seen in years.  It seems all of these purchases occurred right in the middle of the mortgage market debacle.

To paraphrase Warren, “Be greedy when others are afraid; and afraid when others are greedy.”

Now here is the problem.  I believe these investment superstars are moving in too quickly.  All of the bad news is not out, other financial institutions are still announcing write downs, and management teams are being shown the door.  A perfect example is Citigroup, which Eddie bought between $45 and $50 per share.  Today it trades around $34.

I would suggest patience and wait for the bad news to fully shake out of the market.  If you are really aggressive, look to take up positions in middle to late December when all of the tax loss selling has taken its toll. However, if you move that early, be prepared for some further bad news, and look to add to positions when they fall.  For the more conservative investors, I would wait until year end announcements are made in late January and early February.  At that time, all of the bad debt will have been flushed from the books, and stocks should be staging a rebound.

•   Drug Store Stocks (Up Over 19% This Year)

The drug store industry has been performing remarkably well over the last month, with the industry up more than 19%.  The rally has been lead by Longs Drug Stores (LDG) and CVS Caremark (CVS), both recently raised or confirmed guidance for 2007.

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