Buffett’s New Sales: Opportunities and Risks for Bank of America

On the stock front, Berkshire holds more than 45 positions with a market value of $318 billion. This equals 32% of Berkshire’s market capitalization of $1 trillion. So, these investments matter to the company.

Berkshire’s realized and unrealized gains for shareholders totaled $20.23 billion in the first half of this year.

However, Buffett advises not to rely on this figure, as unrealized gains/losses don’t mean much for Berkshire.

Instead, he recommends focusing on the price-to-book ratio, which stands at 1.66 as of October 21, compared to a five-year average of 1.39. Book value is equal to the company’s assets minus liabilities.

Berkshire’s largest holdings include:

• Apple (AAPL), market value: $94 billion.
• American Express (AXP), market value: $41 billion.
• Bank of America (BAC), market value: $32 billion.
• Coca-Cola (KO), market value: $28 billion.
• Chevron (CVX), market value: $18 billion.

Buffett’s Moves with Bank of America

Berkshire has been reducing its stake in Bank of America since mid-July. Last week, Berkshire sold around $370 million worth of shares. Buffett has already sold over $10 billion worth of BofA shares, bringing his stake in the company below 10%.

This is significant because investors with stakes above 10% must report their transactions to the Securities and Exchange Commission (SEC) within two business days, rather than quarterly as other institutional investors do.

Berkshire initially fell below the 10% threshold earlier this month. However, last week BofA announced it had bought back $3.5 billion worth of shares in the third quarter. This pushed Berkshire’s stake back above 10%.

BofA shares have fallen 4% to $42 since Berkshire began selling on July 17. The KBW Nasdaq Bank Index rose 6% during this period, so Buffett’s actions may have influenced others to sell.

BofA shares had surged 75% from last October to July 17. Berkshire may also be trying to reduce its stake below 10% to avoid rapid trade disclosures.

It’s also possible that Buffett could continue selling BofA shares until he completely liquidates the position. Berkshire has already exited stakes in JPMorgan Chase, Wells Fargo, and US Bancorp.

Morningstar’s Opinion on Bank of America

Meanwhile, Morningstar analyst Suryansh Sharma is optimistic about BofA stock, although he believes it is currently fairly valued.

He assigns the company a wide economic moat, indicating competitive advantages expected to last at least 20 years. Sharma values the stock at $39.50, slightly below Tuesday’s level of $42.20.

“Bank of America reported a solid set of numbers for the third quarter,” he wrote in a commentary.

“Investment banking continues to recover, asset valuations remain high, and trading revenues are strong. Most importantly, the macroeconomic consensus for a soft landing has strengthened the outlook for next year.”

Speaking about the bank more broadly, Sharma said: “It has one of the best commercial branch networks and overall excellent trading franchises. It is a top-tier investment bank and one of the four largest credit card issuers in the U.S.”

BofA also has a “solid” commercial banking franchise and the renowned wealth management firm Merrill Lynch, he noted.