Discover why this Warren Buffett-backed stock could be a bargain despite recent setbacks
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In times of market volatility, it’s often the bold who reap the rewards. Ally Financial, a cornerstone holding in Warren Buffett’s Berkshire Hathaway portfolio, has seen its stock price plunge nearly 20%, now trading at just $34.24.
But before you panic, consider this: rising delinquencies in automotive loans may have shaken the market, but Ally remains profitable and resilient.
Could this be your moment to buy the dip? Let’s dive into the numbers and see what makes this stock so intriguing for long-term investors like Buffett.
The Numbers Tell a Bigger Story: Ally Financial by the Stats
Ally Financial’s stock is down from a 52-week high of $45.46, now trading at a P/E ratio of just 14.81—about half of the S&P 500’s average P/E of 25.
This makes Ally look incredibly undervalued when compared to the broader market. The recent uptick in delinquencies, which rose by 0.1%-0.2% in the last few months, triggered concern among investors.
But let’s not overlook the positives: Ally added 54,000 new depositors in the last quarter alone, increasing its total customer base to 3.2 million.
Even more compelling is the strength of Ally’s balance sheet. With $142.1 billion in retail deposits, almost entirely backed by FDIC insurance, the company is in a strong position to weather short-term headwinds.
Despite the dip in net income—from $2.5 billion in 2021 to $823 million over the past 12 months—Ally’s business model has proven resilient.
Short-Term Struggles, Long-Term Gains: Why Ally Is Still a Strong Play
Sure, rising interest rates have narrowed Ally’s profit margins, and the higher-than-expected delinquencies in its automotive loan segment have spooked investors.
But it’s crucial to keep in mind that Ally’s annualized net charge-off rate of 1.81% is still manageable, and the company continues to attract new depositors. In fact, over the last decade, Ally has never posted an annual net loss—a testament to its durable business model.
With the Federal Reserve likely to pause interest rate hikes or even cut rates in the near future, Ally’s profit margins could see a significant boost. And with its current P/E ratio far below the industry average, the stock could be primed for a long-term rebound.
What Warren Buffett Sees in Ally Financial
Buffett’s Berkshire Hathaway continues to hold its stake in Ally, even while cutting exposure to other financial institutions.
Why? Because Ally’s long-term potential is undeniable. If interest rates drop and the automotive loan market stabilizes, Ally’s earnings could climb back to the $1 billion to $2 billion range, potentially lowering its P/E ratio even further.
In fact, if the stock’s earnings return to their previous highs, Ally could become one of the most undervalued plays in the financial sector.
Conclusion: Seize the Opportunity, Subscribe for More
Ally Financial may be down right now, but it’s far from out. With a proven history of resilience, a growing depositor base, and the confidence of Warren Buffett, this stock could represent one of the best buy-the-dip opportunities available.
Don’t wait for the market to fully recover—get in while the price is low and hold for the long haul. To stay ahead of the curve and uncover more stock market insights like this, subscribe to my newsletter today!
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ChuWei
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