This High-Yield Stock Is Cheap: Here's Why Warren Buffett Likes It
It's been a tough year for Ally Financial (NYSE: ALLY) as rising interest rates and slowing consumer demand for automotive loans hit its business. Ally is down nearly 48% since the start of the year and trades at a discount to book value, but that hasn't stopped Warren Buffett and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) from building a position in the digital bank.
Berkshire Hathaway initiated a position in Ally Financial in the first quarter and has since acquired a 9% ownership stake. Buffett is known for using a margin of safety when making investment decisions, making Ally Financial an ideal Berkshire Hathaway investment. Here's why.
While the bank has worked to expand its offerings to customers, including Ally Invest, Ally Credit Card, and Ally Lending, it still relies heavily on automotive lending as a big chunk of its business. This year Ally generated $4.1 billion in revenue through its automotive finance business, or 66% of its total revenue. For this reason, the bank is highly sensitive to changes in the automotive lending landscape.
Source Fool.com
