5 Finance Stocks That Crushed Buffett's Berkshire In 2018

The year, which began on a positive note for the finance sector in the form of rate hikes, eased regulations and lower corporate tax, failed to boost share price of the companies toward the tail end of the year. This was due to investors’ worries over inversion of the yield curve and other persistent global tensions (majorly uncertainty over Brexit and U.S.-China trade war), which overshadowed positive factors.

The stressed conditions led to a year-to-date decline of 1% in share price of Berkshire Hathaway BRK.B, a company run by the Wall Street’s most renowned investment guru — Warren Buffet.

Buffet displayed his knack for investment by transforming Berkshire Hathaway from a mere textile company into a conglomerate with more than 90 subsidiaries engaged in businesses ranging from ice cream to insurance. The company in itself can serve as a benchmark as it is well diversified.

Factors That Affected Berkshire in 2018

Banks and insurers typically gain from steepening of yield curve, which benefits investment income — which is also an important component of Berkshire Hathaway’s insurance business top line.

However, the yield curve recently inverted, indicating that short-term rates are higher than the long-term rates. This also suggests that the Federal Reserve might alter its aggressive stance to raising short term rates, further impacting interest income.

Notably, the tech giant — Apple Inc (NASDAQ:AAPL) — is a considerably large part of Berkshire’s equity holding, which has fallen nearly 2% so far this year, majorly over trade war concerns. This might be another reason that shook investors’ confidence in the mega stock.

Factors That Affected the Overall Finance Sector

At the global level, fears of slowdown in the global economy, raised by a series of weak economic reports released in the United States, China and several countries of the European Union, contributed to the stocks losing steam.

Also, lingering trade-related conflicts with the United States, and the U.K.’s scheduled exit from EU in March 2019, with or without a deal, might have an adverse impact on the global economic growth.

These concerns have led to a decline in major indices as well. The S&P 500 Financials (Sector) Index has decreased 14.9% so far this year. Also, the Zacks Finance Sector has witnessed a decline of 14% in the same time period.

5 Stocks That Outperformed Berkshire in 2018

While the above factors affect all the financial stocks, there are still some companies that have been able to brave these challenges and sustained an upswing in prices. Strong fundamentals and strategic moves might have helped these companies enhance investor confidence.

In order to save investors from the time-taking process of identifying the key winners that crushed Buffett’s Berkshire and are likely to gain further, we have created a three-faceted screen using the Zacks Stock Screener.

At first, we looked for stocks that have gained more than 10% so far this year and have projected annualized earnings per share growth rate (for the next three to five years) of at least 5%.

Next, we considered companies that have market capitalization of more than $3 billion, as they are safer to invest in.

Finally, we have picked stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are stocks that made it through the screen:

Arthur J. Gallagher & Co. (NYSE:AJG) : Based in Rolling Meadows, IL the company provides insurance brokerage, consulting and third-party claims settlement and administration services to entities all over the world.

Shares of Arthur J. Gallagher have gained 15.1% year to date, outpacing Berkshire Hathaway.

Zacks Rank: 2
Market Cap: $13.3 billion
Projected EPS Growth (three to five years): 11%

CME Group Inc. (NASDAQ:CME) : CME Group operates contract markets for the trading of futures and options on futures contracts worldwide. It offers a range of products across various asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company is headquartered in Chicago, IL.

Shares of the company have gained 25.1% so far this year.

Zacks Rank: 2
Market Cap: $63.1 billion
Projected EPS Growth (three to five years): 11%

Credit Acceptance Corporation (NASDAQ:CACC) : Southfield, MI-based company provides financing programs, and related products and services to independent and franchised automobile dealers in the United States.

Shares of the company have gained 18.9% so far this year.

Zacks Rank: 1
Market Cap: $7.1 billion
Projected EPS Growth (three to five years): 17%

Life Storage, Inc. (NYSE:LSI) : Located in Buffalo, NY, the company is a self-administered and self-managed equity REIT that is in the business of acquiring and managing self-storage facilities. It serves both residential and commercial storage customers with storage units rented by month.

Shares of the company have gained 11.9% so far this year.

Zacks Rank: 2
Market Cap: $4.6 billion
Projected EPS Growth (three to five years): 5%

Euronet Worldwide, Inc. (NASDAQ:EEFT) : The company provides payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers worldwide. It is headquartered in Leawood, KS.

Shares of the company have gained 22.1% so far this year.

Zacks Rank: 2
Market Cap: $5.2 billion
Projected EPS Growth (three to five years): 13%

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