Warren Buffett is one of the world's best investors, in my opinion. I also think he would be very pleased to own a stake in one of the leading S&P/ASX 200 Index (ASX: XJO) bank shares. The one I'm talking about is National Australia Bank Ltd (ASX: NAB).
Berkshire Hathaway is the investment and operating business that Warren Buffett has led for many decades.
There are a number of public and private businesses in the Berkshire Hathaway portfolio such as Apple and Coca Cola. But there are also a number of financial institutions like Bank of America, Bank of New York Mellon, US Bancorp, and Wells Fargo.
With this large holding of banks, I believe Buffett would be interested in NAB shares for a few different reasons.
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Valuation and quality
I think that Buffett will always want to buy businesses when he thinks they're good value. But, I also think he'd want to choose investments that are quality.
In my opinion, NAB is a high-quality bank. One example can be seen in the profit NAB has achieved this year despite the headwinds of competition.
Certainly, NAB looks like a better value bank to me compared to another bank held in high regard, Commonwealth Bank of Australia (ASX: CBA).
Using profit estimates on CMC Markets, the NAB share price is valued at 12 times FY23's estimated earnings (based on an earnings per share (EPS) projection of $2.40). That compares to CBA shares being valued at 17 times FY23's estimated earnings (based on an EPS estimate of $5.56). That's an important difference, in my view.
Management
CNBC quotes some of the qualities Warren Buffett looks for when it comes to a company's management. I think it can be applied to NAB shares.
I think you judge management by two yardsticks.
One is how well they run the business, and I think you can learn a lot about that by reading about both what they've accomplished and what their competitors have accomplished, and seeing how they have allocated capital over time.
Look at what they have accomplished, considering what the hand was that they were dealt when they took over compared to what is going on in the industry.
You want to figure out…how well that they treat their owners.
Read the proxy statements, see what they think of — see how they treat themselves versus how they treat the shareholders. … The poor managers also turn out to be the ones that really don't think that much about the shareholders, too. The two often go hand in hand.
Certainly, I think that NAB's leader Ross McEwan is a very good CEO and managing director for the business. He turned around Royal Bank of Scotland after the GFC. He's now leading NAB effectively through a recovery.
In the NAB third-quarter update, I believe that McEwan's comments show he has the bank's operations and shareholder focus in mind:
We have a clear strategy and executing this with discipline is our key priority. We will continue to focus on getting the basics right, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns.
NAB share price snapshot
Over the last six months, NAB shares are down around 10%.
