Ally Financial, Moody’s, and Visa are considered solid long-term investments.
Berkshire Hathaway, led by Warren Buffett, owns a portfolio that is closely followed around the globe. This portfolio includes 44 stocks valued at $262.7 billion, making up 23% of Berkshire’s total market capitalization of $1.13 trillion. Investors often look to Berkshire’s diverse portfolio for new investment opportunities, as these stocks are endorsed by Buffett, suggesting they have the potential to outperform the S&P 500.
For those with a $3,000 investment budget in a volatile market, it could be wise to distribute this investment among three of Berkshire’s stable financial stocks: Ally Financial, Moody’s, and Visa. These stocks are positioned to withstand short-term challenges and possess significant long-term growth potential.
Ally Financial
Berkshire Hathaway began acquiring shares of Ally Financial, one of the largest digital banks and auto finance companies in the U.S., in early 2022. The company holds a 9.4% stake in Ally, currently valued at $922 million, and has not divested any shares since 2023.
Over the past decade, Ally’s stock has appreciated by 45%, delivering a total return of 84% with reinvested dividends. The company has repurchased 36% of its shares and offers a forward yield of 3.8%, supported by a payout ratio of 67%. Ally has generated substantial cash for buybacks and dividends by expanding its auto lending business and digital banking services, which have grown faster than traditional banks. From 2014 to 2024, its cash and equivalents rose from $5.6 billion to $9.6 billion, and its retail deposits tripled from $48 billion to $143.4 billion. Recent strategic moves include the sale of its credit card portfolio and the cessation of mortgage origination to streamline operations and minimize credit risk. Analysts project Ally’s earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 51% from 2024 to 2027. While declining interest rates may impact near-term net interest margins, increased auto sales could counterbalance this effect.
Moody’s
Berkshire acquired a stake in Moody’s, a leading financial data and analytics firm, following its spinoff from Dun & Bradstreet in 2000. The 13.7% stake in Moody’s is currently valued at $10.6 billion, with no shares sold since 2013.
Moody’s, similar to its main competitor S&P Global, offers a wide array of financial data, credit ratings, and analytics services. Its data is crucial for companies and institutional investors, aiding in debt issuance and financial decision-making, making it a resilient investment in both rising and falling markets. Between 2014 and 2024, Moody’s EPS increased at a CAGR of 9%, despite challenges in its credit ratings business due to higher interest rates in 2022 and 2023. Analysts anticipate a 13% CAGR in EPS from 2024 to 2027 as interest rates decline. Over the past decade, Moody’s repurchased 10% of its shares, and its stock gained nearly 300%, achieving a total return of 338%. Although its forward yield is 0.9%, the low payout ratio of 30% allows room for future dividend growth. Its stock trades at 30 times forward earnings, but its stable growth and resilience to tariffs justify the valuation.
Visa
Berkshire began investing in Visa, the largest card payments processor globally, in 2011. The company’s 0.4% stake is now valued at $2.8 billion, with no shares sold since 2021.
Visa operates by partnering with banks that manage accounts and credit risks, only generating revenue by charging merchants "swipe fees" for processing payments. This efficient and low-risk model facilitates growth and shields Visa from credit risks. Between 2014 and 2024, Visa’s EPS grew at a CAGR of 16%, despite challenges such as the pandemic and inflation impacting consumer spending. Looking ahead, analysts anticipate a 14% CAGR in EPS from 2024 to 2027. Although Visa faces pressure to reduce swipe fees, its market dominance is expected to maintain business continuity. Visa repurchased over 20% of its shares in the past decade, with its stock achieving a near 400% increase and a total return exceeding 430%. The forward yield is 0.7%, with a 22% payout ratio. Despite a valuation of 30 times forward earnings, its scale and stability position it well against short-term trade challenges.
Ally Financial is an advertising partner of Motley Fool Money. Leo Sun holds positions in Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, Moody’s, S&P Global, and Visa, as noted in its disclosure policy.
