The stock market remains turbulent as April nears its end, as recession worries, inflation, interest rates, and now a banking crisis haven’t done anything to calm investors’ nerves recently.
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Although it’s a tricky market environment, it can also be a good opportunity for patient long-term investors to add shares of their favorite businesses. Here are three in particular that I’ve bought shares of recently (it could be last week by the time you’re reading this), and why I decided to put more money into each one.
A ridiculously cheap bank that should be just fine
Ally Financial (NYSE: ALLY) isn’t beaten down for the same reasons many other mid-sized bank stocks are right now. 91% of its retail deposits are FDIC-insured and there is little concern of a bank run or liquidity problem. Instead, the biggest investor fear with Ally is its massive portfolio of auto loans.
If you aren’t familiar, Ally was spun out of General Motors (NYSE: GM) in the wake of the financial crisis, so while it offers a full range of banking products and services, it shouldn’t be a big surprise that its focus is auto lending. Of Ally’s $147 billion in loans and leases, nearly $113 billion are automotive.
The worry is that with a recession likely to arrive and record-high average auto loan balances, consumers might start having trouble paying their bills. But I’m not too concerned. Ally’s loan-loss reserves are roughly double its current charge-off rate, so it should be well-covered even if defaults tick upward. And with the stock trading for 25% below its book value and at 5.3 times forward earnings, the risk-reward dynamics look excellent.
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Could this be the biggest disruptor in banking?
There are many “online banks” but arguably none have been more disruptive than SoFi (NASDAQ: SOFI). While most online banks aim to be a complement to customers’ branch-based banking accounts, SoFi aims to be a true banking replacement. It wants to do anything your branch-based bank can do, but better and with lower costs.
So far, the numbers have been impressive, even in the challenging economic climate of the past year and a half or so. In the fourth quarter of 2022, SoFi grew its member base 51% year-over-year, with especially strong growth in the adoption of its core banking products like checking and savings, brokerage, and credit card accounts. Adjusted net revenue has more than tripled since 2019, and the bank reached profitability on an adjusted EBITDA basis in 2022. Management anticipates generating positive net income starting in the fourth quarter of this year, and if it can keep its growth strong, this could be just the beginning.
One of my favorite stocks to buy and hold forever
Boston Omaha (NYSE: BOC) is one of my favorite early stage businesses, and one that has virtually limitless potential.
In a nutshell, Boston Omaha is a holding company that aims to grow into a self-sustaining conglomerate. It’s often compared to an early stage Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) because its co-CEOs are using some of the strategies Warren Buffett uses to grow.
Boston Omaha has four business segments today. It owns operating businesses in billboard advertising, insurance, and broadband internet. And it also has an asset management business that is just ramping up its efforts to raise outside capital to pursue opportunities such as built-for-rent housing and fiber infrastructure. It’s early, but the management team has already done an excellent job of capital allocation and I’m excited to see this business evolve.
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All of these were additions to existing investments
To be perfectly clear, I already owned all three of these. Boston Omaha has been one of my larger positions for some time, and I’ve been gradually building my investments in the other two for the past couple of years.
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I should also clarify that I expect a bit of a roller-coaster ride with these stocks in the near term – especially in the two banks – as recession worries, interest rates, inflation, and the banking crisis continue to evolve. But I own all three as long-term investments, and I’m confident that I’ll be glad I do.
