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Berkshire Hathaway director Chris Davis believes the current S&P 500 (SP500) is in a “peculiar distortion” characterized by inflated valuations and increasingly narrow market leadership, while financial stocks represent significantly undervalued opportunities.

The Davis Advisors chairman, whose firm manages more than $31 billion in assets, sees the banking sector as positioned for a major revaluation over the coming decade.

Davis specifically highlighted Capital One as “a classic growth stock in disguise,” pointing out that it trades at just nine times earnings despite being one of the largest banks in the country and still led by its founder, Rich Fairbank.

“I don’t know any company that is better positioned for the advent of AI in financial services than Capital One,” he said. “It’s just amazing to me to have those sorts of opportunities in a very expensive market.”

https://seekingalpha.com/news/4583847-berkshire-di...

Counterpoint:

Is AI going to mitigate losses somehow when Capital One's card holders start to default, as the economy continues to get worse?

It’s just amazing to me to have those sorts of opportunities in a very expensive market

And Warren missed such an "amazing" opportunity to finally put a BIG chunk of the cash hoard in a business he understands? I don't think so.

It’s just amazing to me to have those sorts of opportunities in a very expensive market
...
And Warren missed such an "amazing" opportunity to finally put a BIG chunk of the cash hoard in a business he understands? I don't think so.

On the one hand, they appear to have normalized earnings of around $20 per share, so today's price of $191 does at first blush look pretty attractive. "Normalized" in the sense of what the current year might be if it were neither unusually good nor unusually bad. Analysts expect very good growth in the next few years, too.

But a really good business with really good management probably wouldn't have had a write-off of over $15 a share last year. I honestly don't know enough about the Discover Financial deal to say whether it's a "real" loss or not. If it were truly a "one time" thing, then yes, one might speculate that today's price is a great deal because investors are myopically overemphasizing trailing year results which are atypical. Operative word being "if".

Jim

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