Berkshire Hathaway has entered a new era. Although Warren Buffett has retired, with Greg Abel now at the helm, the investment portfolio he left behind continues to reflect his philosophy. Within this $267 billion stock portfolio, financial stocks account for approximately one-quarter of the holdings and about 40% of the portfolio’s total value.
As we step into February, two financial stocks are particularly worth watching: Jefferies Financial (JEF) and Ally Financial (ALLY). Although they represent a relatively small portion of Berkshire’s holdings, both show promising growth potential.
Originally the financial division of General Motors, Ally has evolved into a full-scale online bank, with its primary business still centered on auto loans.
Last year, the bank implemented two key strategic adjustments: first, exiting the mortgage origination business to refocus resources on its traditional strength in auto loans; second, selling its credit card business to CardWorks. Both businesses faced sluggish growth, were non-core operations, and carried heightened risks under inflationary pressures—particularly the credit card business, which primarily targeted subprime borrowers who were more vulnerable to inflation, leading to an increase in bad debt rates.
By divesting these non-core businesses, Ally’s credit quality has improved, its net interest margin has risen, and net financing income has grown accordingly. Additionally, as interest rates trend downward, Ally expects its profit margin to further improve by 2026.
The stock is currently undervalued, with approximately 77% of analysts rating it a “buy.” The median target price is $52.50, implying around 24% upside potential over the next year.
Jefferies is a financial institution specializing in investment banking, with its revenue primarily derived from areas such as investment banking and M&A advisory. Consequently, when the M&A market is active, Jefferies tends to benefit more than diversified financial institutions.
Last year was one of the most active years for M&A activity in recent times, driving a 12% growth in Jefferies’ investment banking revenue. However, its stock price fell about 19% last year, largely due to the bankruptcy of automotive parts supplier First Brands in September, in which Jefferies was involved. Jefferies incurred a $30 million loss from purchasing the company’s accounts receivable, followed by an investigation by the U.S. Securities and Exchange Commission into its related exposure.
The stock now presents multiple attractive aspects: the aforementioned risks have largely been priced into the stock; the company has gained additional support from the Japanese financial group Sumitomo Mitsui Financial Group; with interest rates declining, the M&A market is expected to remain active in 2026; and last year’s stock price correction has made its valuation more appealing.
Analysts are generally optimistic about Jefferies, with a median target price of $77, implying around 26% upside potential from current levels.
In the current market environment, Jefferies and Ally, as two distinctive financial stocks within Berkshire’s holdings, offer investors noteworthy allocation choices.
