Berkshire’s most recent 13F discloses 49 investments in US equities (investments outside the USA aren’t reported). I’ve been looking at that list to find stocks that I’d like to buy this month.

Apple

First on my list is Berkshire Hathaway’s largest holding. A 22% fall in the price of Apple (NASDAQ:AAPL) shares since the start of the year has caught my attention.

The main thing holding back the stock at the moment is its growth prospects. In the current economic climate, there’s a real concern that iPhone sales, for instance, might struggle.

But I think that a short-term headwind is a long-term opportunity. Since it accounts for only about 18% of the global smartphone market, Apple has room to expand over time. 

At the Berkshire Hathaway Annual Shareholder Meeting, Buffett said he intends to buy the stock below $150 a share in the future. As of today, the shares trade at $141. 

Citigroup

My second Buffett stock to buy in July is Citigroup (NYSE:C). He started buying this one for the Berkshire Hathaway portfolio at the start of the year.

I’ve been steadily accumulating Citigroup shares in my own portfolio too. With the stock falling by 24% since the beginning of January, I plan to buy more shares this month.

The company is in a restructuring process at the moment. The uncertainty around how the business will emerge from the process introduces an element of risk with an investment here.

But I think that the current share price more than justifies the risk. At its recent investor day, the company announced an ambition to achieve 11%-12% returns on tangible equity in the medium term.

The stock currently trades at a price-to-book (P/B) ratio of just over 0.5. If the company can reach its stated target from there, I think that the returns for me as an investor could be huge. 

Berkshire Hathaway

Last on my list of Warren Buffett stocks to buy in July is Berkshire Hathaway itself. In my view, owning the shares is the best way to invest like the Oracle of Omaha.

Since the start of 2022, they’re down 23%. More importantly than that, the share price has recently reached a level that I think is important.

At $268 a share, Berkshire Hathaway stock trades at a P/B ratio of below 1.2. Historically, Buffett has suggested that trading below this level is a sign that it’s materially undervalued.

Nowadays, Buffett thinks that Berkshire’s businesses are worth more than 120% of their collective book value. I therefore think that the current share price is cheap according to his standards.

Of course, he won’t be around forever and that’s a risk to the investment. But I think that the Berkshire Hathaway approach and culture should persist even when he isn’t running the business.

So as well as trying to follow Warren Buffett’s style, I’m also looking at the Berkshire Hathaway portfolio. From there, it comes down to valuation and I think Apple, Citigroup, and Berkshire itself are trading at attractive prices right now.

Chevron

Buffett was quite strategic in wanting to take advantage of surging oil prices. He added Chevron (NYSE:CVX) to his portfolio in the first quarter of 2022.

This oil firm has been benefiting from high demand for oil following the war in Ukraine. At the time of writing, WTI crude oil is trading for $104 per barrel. I would have to go back to June 2014 to see anything reaching those price levels.

The company has also increased its presence in the liquified natural gas (LNG) market. It has already concluded a number of sale and purchase agreements over 20-year timeframes.

Given that Russian LNG and oil has been blacklisted, it appears that these commodity markets will remain lucrative for businesses like Chevron over the coming years.

However, the company may soon come under pressure from the Biden administration to increase supply, which could lead to a decline in the oil price and future profits.

Despite this, earnings growth over the past five years has been impressive, and likely a major factor in prompting Buffett to add Chevron to his portfolio. 

Between 2017 and 2021, earnings-per-share (EPS) rose from $4.88 per share to $8.15. By my calculation, this results in a compound annual EPS growth rate of 10.8%. This is something I think Buffett would be happy with.

Citigroup

Another firm he added to his portfolio recently was Citigroup (NYSE:C). The investing and financial services business has performed well in recent times due to increased market volatility.

This volatility has been caused by a number of factors, including the pandemic and the war in Ukraine.

It has resulted in gains in its commodity and foreign exchange (FX) segments, but a decline in the investment banking arm. 

Investment banking has been hit due to broader economic uncertainty. Given the unpredictable situation in Ukraine, there may be further contractions in this segment.

Despite this, the firm still posted revenue of $19.19bn for the first quarter of 2022, beating expectations of $18.15bn.

It’s also possible that Citigroup’s loan and mortgage arm may benefit from rising interest rates, which may hit 2.5% in the US by next month.

This means the company may be able to charge more for its lending services.

Overall, these two additions to Buffett’s portfolio are diverse and take account of the current economic climate. Although he’s bought the shares of many other companies recently, these two really stand out for their potential to grow over the long term. I will be adding both to my own portfolio soon.

A FTSE 100 stalwart

First on my list is FTSE 100 member Legal & General Group (LSE:LGEN). The company has an eye-catching dividend yield of 7% and a strong track record to back it up.

Over the last decade, the company has grown its earnings per share at an average of 11% per year. Its distributions to shareholders have increased in line with its earnings.

It’s worth noting that the pandemic year was tough for Legal & General. Earnings dipped significantly in 2020. While they’ve recovered strongly in 2021, the ongoing coronavirus situation is still worth keeping an eye on from a risk perspective.

A 5G Buffett stock

My second dividend stock to buy in April is S&P 500 constituent Verizon Communications (NYSE:VZ). Verizon’s dividend yield currently comes in at around 5% and I think that the company has a bright future.

As I’ve mentioned elsewhere, Verizon’s earnings growth over the last 10 years has comfortably outpaced the broader index. While the share price has lagged, I believe that the result is a huge buying opportunity for investors like me.

Warren Buffett also agrees. The Oracle of Omaha bought Verizon stock between 2020 and 2021 at prices between $54 and $62. Verizon’s shares currently trade at $51.25, which is catching my eye at the moment.

Verizon has been spending big lately. The result is that the company has a lot of debt. How Verizon manages its debt will be worth watching, but I think there’s reason to believe that the risk from Verizon’s debt is offset by the stock’s low price.

Citigroup

Last on the list is Citigroup (NYSE:C). Unlike the others, Citigroup has not had a straightforward track record. Rather, it’s in the process of turning around its excessively complicated business.

At its last earnings report, Citigroup’s management announced plans to sell off 13 of its retail operations in different countries. In doing so, the company hopes to make itself more efficient by concentrating on its most lucrative opportunities.

I like the move, but it isn’t without risk. Selling off its franchises depends on finding buyers for them. It is also likely to incur fees. So Citigroup is probably the least straightforward of the dividend stocks I’m looking at for April.

Nonetheless, I believe that Citigroup shares are attractive at the moment. While the dividend yield is lower than the others, at just under 4%, the stock currently trades at a substantial discount to the company’s book value. I think that makes the stock an attractive buy for my portfolio at these levels.

Summary

Interest rates rising this year has put pressure on stocks with high valuations. In that environment, Legal & General, Verizon, and Citigroup all fared reasonably well. As tech stocks have recovered, however, the three stocks that I’ve mentioned here have settled down a bit. As a result, I’m getting ready to buy these cheap dividend stocks in April.

Net interest margin

Net interest margin is the difference between the interest rate that a bank receives on its loans and the rate it pays on its deposits. I view this as one of the most important metrics when it comes to analysing bank stocks. A net interest margin above 2% is a good sign. Both Lloyds and Citigroup have net interest margins around 2.5%. Furthermore, both Lloyds and Citigroup have consistently maintained net interest margins in excess of 2% over the past few years. I think that both score equally well in this regard.

Price-to-book

The book value of a company is the result of subtracting the company’s liabilities from its assets. When I analyse bank stocks, I like to look at how the book value of the company compares to the share price.  Shares in both Lloyds and Citigroup currently trade below their book value. At the time of writing, Lloyds shares trade at 73% of their book value, while Citigroup’s shares trade at 74% of their book value.

Geographic diversification

One difference between Lloyds and Citigroup is that the former is primarily concentrated in one area, where the other is more diversified geographically. With Lloyds, around 95% of the company’s asset base is located in the UK. Citigroup, on the other hand, has much more diverse geographic operations. This leaves Lloyds disproportionately exposed to the UK economy, which may or may not prove to be a good thing. Personally, I prefer Citigroup’s broader geographic footprint.

Loan risk

I think that one of the most significant sources of risk with bank stocks is the possibility of customers defaulting on loans, especially mortgages. When interest rates are rising, this risk is especially prevalent. In this regard, I think that Lloyds is quite attractive. The average Lloyds mortgage is only worth 63% of the asset that it is secured against. I think that this is encouraging. With Citigroup, their current restructuring makes this more difficult to assess. 

Overall, I think that Lloyds and Citigroup are similar propositions. Both are banks that I think are likely to be fairly steady low-risk investments. Where Citigroup has better diversification, Lloyds has a more visible protection against the threat of loan defaults. I think that there might be a place for both in my portfolio and so I’m planning on watching carefully for an opportunity to buy Lloyds shares.

Valuation

I think bank stocks are among the best passive income ideas for investors like me and that Citigroup shares trade at an attractive valuation. The current price is just under 75% of the tangible book value, which is significantly lower than other US banks. JP Morgan, for instance, trades at 179% of its book value. This is partly because Citigroup has significantly underperformed its peer in recent years. Its average return on equity over the last decade is around 6%, compared to 13% for JP Morgan.

But I think that its valuation prices this in. I would value US bank stocks by dividing the return on equity by the price-to-book (P/B) multiple. This calculation yields a return of 8% for Citigroup and a return of 7.26% for JP Morgan. Furthermore, while there’s an obvious risk that it will continue to underperform, I see reason to think that management is making moves to prevent this.

Restructuring

On the recent earnings call, management announced plans to wind down its consumer banking operations in 13 countries where it doesn’t have the scale to compete effectively. The aim is to allow it to concentrate its resources in the areas that provide the strongest returns. There’s clearly risk involved in this strategy, since winding down its consumer operations will incur costs. But I think its low valuation offsets this risk. I also feel the proposed restructuring gives the shares significant upside potential both now and in the long term. 

For now, management has said that winding down these businesses should free up additional capital. And I hope some of this might be returned to shareholders, either via dividends or share repurchases. In the longer term, concentrating on businesses with better prospects should help Citigroup improve its overall returns. 

Dividends

At current prices, Citigroup’s dividend yield is around 3%. As the company restructures, I hope this return will increase, again, either by distributing funds directly as dividends, or by repurchasing shares. I’d like to see it use its cash to fund share buybacks. While the stock trades below tangible book value and could continue to do so, buying back shares increases the book value of the remaining shares and increases the share of the distributed money that each holder receives. 

In my view, the combination of a low valuation, a promising restructuring process, and an opportunity for shareholder returns makes Citigroup the best passive income stock in my portfolio.

Citigroup’s results beat analyst estimates

Citigroup released results yesterday, which beat analyst estimates. In lockdown times, that’s a bigger positive than at other times. Its revenues are up by 5% from last year. Though earnings have dropped on higher loan provisions, it’s still profit-making, supported by the institutional clients group which includes investment banking and fixed income markets. 

The Citigroup stock price slipped marginally though, probably as investors remain uncertain about the long term. Banking stocks are linked closely with economic activity. The macroeconomic outlook is dismal at worst and uncertain at best right now. This fact alone could keep the stock price from rising fast, I reckon. But, it can still make some gains as is evident from the 44% recovery since the stock market crash.

Lloyds Bank stock continues sideways movement

The Lloyds Bank stock, on the other hand, hasn’t recovered quite as much. Its share price is up only by 8.5% from its lowest. Interestingly, Lloyds Bank hit its lowest only after the FTSE 100 index did and was a result of suspending dividends. Lloyds Bank has clearly not been a growth stock for a long time and it’s quite likely that many investors were drawn to its high dividend yield. With no passive income, it’s little surprise that it just wasn’t very attractive anymore.  

With the UK economy in a precarious place, I reckon that the Lloyds Bank share price performance will remain underwhelming. And with Brexit around the corner, there’s added uncertainty for it. I’ve been bearish on the Lloyds Bank stock for a while now, and the comparison with the Citigroup stock only makes some of its current challenges more glaring. 

Citigroup stock v Lloyds Bank stock

This doesn’t mean that the Citigroup stock is in a perfect place. Its consumer banking segment is struggling, for instance. But I like its globalised presence across Europe, Asia, and Latin America, besides the US. Lloyds, on the other hand, is UK-focused. Further, Citi’s still a dividend-paying stock. The dividend yield isn’t exactly eye-watering, at 3.9%, but it still gives it an edge over Lloyds, which isn’t paying dividends at all. A sharper bounce back in stock price also goes in its favour. 

If I’m looking to invest in financials, I’d prefer Citigroup over Lloyds Bank stock today.