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Buffett Keeps Trimming His Stake in BAC Stock: Should You Follow?
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Warren Buffett has again unloaded Bank of America (BAC - Free Report) stock. Since mid-July, the Oracle of Omaha has sold nearly 150 million BAC shares.
Between Aug. 23 and Aug. 30, Berkshire Hathaway (BRK.B - Free Report) sold almost 46 million BAC shares. Berkshire now owns 11.4% of one of the biggest American lenders. Despite this sell-off, BAC's stake remains Berkshire’s third biggest investment, behind Apple (AAPL - Free Report) and American Express (AXP - Free Report) .
Many investors follow Buffett and try to match his investing style. He has been a long-time investor in Bank of America and bought the stock for the first time in the second quarter of 2007. Hence, the sale of BAC shares has resulted in scrutiny of the banking sector, specifically the stock.
The development weighed on BAC stock’s performance. The company’s shares are down nearly 8% since the day before Berkshire’s sale began. It must be noted that before the stake sale was revealed, the BAC stock was trading near its two-year high and was among the best-performing banks on the S&P 500 Index.
Should the investor follow Buffett’s move and sell Bank of America’s shares or pile up more at the current levels?
BAC Stock Underperforms Sector
In terms of performance, Bank of America shares have gained 20.8% year to date, underperforming the industry’s growth of 22.7%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Factors Supporting the BAC Stock
Interest Rate Cuts: The Federal Reserve chairman Jerome Powell, in his speech on Aug. 23, stated, “The time has come for policy to adjust.” This set the stage for the first interest rate cut since March 2020.
Now, interest rates are at a 23-year high of 5.25-5.5%, acting like a double-edged sword for the banks. While high rates have led to a significant jump in net interest income (NII), they have driven up funding and deposit costs, thus squeezing banks’ margins.
For Bank of America, which is highly sensitive to interest rates, lower interest rates will be a boon and support net interest margin (NIM) expansion. The company’s NIM performance has been subdued for the last several quarters. Management thinks that in terms of its second-quarter NIM of 1.93%, it is under-earning. The metric is “going to go up over time. It'll go up as net interest income goes up,” with the normal NIM being 2.3%.
Branch Opening: Bank of America has embarked on an ambitious expansion plan to open financial centers in new and existing markets. By 2026, the company plans to expand its financial center network into nine new markets.
Bank of America also remains committed to providing modern and technologically advanced financial centers through its ongoing renovation and modernization project. Over the past three years, it has been renovating and upgrading its existing financial centers across the country, with more than 2,500 centers renovated. This created offices and meeting spaces for clients to engage with financial specialists and ensured a consistent and modern experience across all centers. These initiatives, along with the success of Zelle, will enable the company to improve digital offerings and cross-sell several products and services.
Technology: Digital solutions are the need of the hour, and Bank of America continues to deliver innovative digital solutions, particularly through its digital banking capabilities. This helps it attract and retain customers and boost cross-selling opportunities. The consumer mobile banking app now serves more than 47 million active users, and roughly 23 million consumers use Zelle, which has become a dominant way to move money. In the wealth management division, almost 87% of its global banking clients are digitally active, and the company’s CashPro platform uses AI to streamline service requests. BAC plans to continue strengthening its technology initiatives and spend heavily on these.
Fortress Balance Sheet and Solid Liquidity: Bank of America’s liquidity profile remains solid. As of June 30, 2024, average global liquidity sources were $909 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook allow easy access to the debt market.
Hence, BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends five times, with an annualized growth rate of 7.8%. Currently, the company's payout ratio is 29% of earnings.
Dividend Yield
Image Source: Zacks Investment Research
In July, the company also authorized a $25 billion stock repurchase program, effective Aug. 1, to replace the previous program, which had $6.7 billion left for repurchase as of June 30, 2024.
Bullish Analyst Sentiments for Bank of America
Analysts seem to be bullish about Bank of America’s prospects. Over the past 60 days, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved upward.
Estimate Revision Trend
Image Source: Zacks Investment Research
This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.
BAC Trades at a Discount
Bank of America stock is currently trading at the 12-month trailing price-to-tangible book (P/TB) of 1.63X. This is below the industry’s 2.13X. This shows the stock is inexpensive currently.
Price-to-Tangible Book (TTM)
Image Source: Zacks Investment Research
BAC Trading Above the Key Moving Average
Technical indicators suggest continued strength for BAC. The stock is trading above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability.
50-Day & 200-Day Moving Average
Image Source: Zacks Investment Research
This underscores positive market sentiments and confidence in the company's financial health and prospects.
Parting Thoughts on BAC Stock
While the reasons behind Buffett’s stake sale are unknown, Bank of America's global presence, diversified revenues, branch openings and technological innovations to attract and retain customers provide a solid base for organic growth. Also, favorable estimate revision trend, clarity on the Fed’s rate cut path and inexpensive valuation make the stock worth considering.
However, challenges like high funding costs, subdued loan demand because of the expected economic downturn and higher regulatory capital requirements as part of the Basel 3 end-game cannot be ignored.
Hence, investors should consider these factors carefully and evaluate their risk tolerance before buying the BAC stock. Nonetheless, those who already own this Zacks Rank #3 (Hold) stock can hold on to it because it is less likely to disappoint over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Buffett Keeps Trimming His Stake in BAC Stock: Should You Follow?
Warren Buffett has again unloaded Bank of America (BAC - Free Report) stock. Since mid-July, the Oracle of Omaha has sold nearly 150 million BAC shares.
Between Aug. 23 and Aug. 30, Berkshire Hathaway (BRK.B - Free Report) sold almost 46 million BAC shares. Berkshire now owns 11.4% of one of the biggest American lenders. Despite this sell-off, BAC's stake remains Berkshire’s third biggest investment, behind Apple (AAPL - Free Report) and American Express (AXP - Free Report) .
Many investors follow Buffett and try to match his investing style. He has been a long-time investor in Bank of America and bought the stock for the first time in the second quarter of 2007. Hence, the sale of BAC shares has resulted in scrutiny of the banking sector, specifically the stock.
The development weighed on BAC stock’s performance. The company’s shares are down nearly 8% since the day before Berkshire’s sale began. It must be noted that before the stake sale was revealed, the BAC stock was trading near its two-year high and was among the best-performing banks on the S&P 500 Index.
Should the investor follow Buffett’s move and sell Bank of America’s shares or pile up more at the current levels?
BAC Stock Underperforms Sector
In terms of performance, Bank of America shares have gained 20.8% year to date, underperforming the industry’s growth of 22.7%.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Factors Supporting the BAC Stock
Interest Rate Cuts: The Federal Reserve chairman Jerome Powell, in his speech on Aug. 23, stated, “The time has come for policy to adjust.” This set the stage for the first interest rate cut since March 2020.
Now, interest rates are at a 23-year high of 5.25-5.5%, acting like a double-edged sword for the banks. While high rates have led to a significant jump in net interest income (NII), they have driven up funding and deposit costs, thus squeezing banks’ margins.
For Bank of America, which is highly sensitive to interest rates, lower interest rates will be a boon and support net interest margin (NIM) expansion. The company’s NIM performance has been subdued for the last several quarters. Management thinks that in terms of its second-quarter NIM of 1.93%, it is under-earning. The metric is “going to go up over time. It'll go up as net interest income goes up,” with the normal NIM being 2.3%.
Branch Opening: Bank of America has embarked on an ambitious expansion plan to open financial centers in new and existing markets. By 2026, the company plans to expand its financial center network into nine new markets.
Bank of America also remains committed to providing modern and technologically advanced financial centers through its ongoing renovation and modernization project. Over the past three years, it has been renovating and upgrading its existing financial centers across the country, with more than 2,500 centers renovated. This created offices and meeting spaces for clients to engage with financial specialists and ensured a consistent and modern experience across all centers. These initiatives, along with the success of Zelle, will enable the company to improve digital offerings and cross-sell several products and services.
Technology: Digital solutions are the need of the hour, and Bank of America continues to deliver innovative digital solutions, particularly through its digital banking capabilities. This helps it attract and retain customers and boost cross-selling opportunities. The consumer mobile banking app now serves more than 47 million active users, and roughly 23 million consumers use Zelle, which has become a dominant way to move money. In the wealth management division, almost 87% of its global banking clients are digitally active, and the company’s CashPro platform uses AI to streamline service requests. BAC plans to continue strengthening its technology initiatives and spend heavily on these.
Fortress Balance Sheet and Solid Liquidity: Bank of America’s liquidity profile remains solid. As of June 30, 2024, average global liquidity sources were $909 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook allow easy access to the debt market.
Hence, BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends five times, with an annualized growth rate of 7.8%. Currently, the company's payout ratio is 29% of earnings.
Dividend Yield
Image Source: Zacks Investment Research
In July, the company also authorized a $25 billion stock repurchase program, effective Aug. 1, to replace the previous program, which had $6.7 billion left for repurchase as of June 30, 2024.
Bullish Analyst Sentiments for Bank of America
Analysts seem to be bullish about Bank of America’s prospects. Over the past 60 days, the Zacks Consensus Estimate for 2024 and 2025 earnings has moved upward.
Estimate Revision Trend
Image Source: Zacks Investment Research
This upward adjustment reflects a positive sentiment among analysts and suggests encouraging prospects.
BAC Trades at a Discount
Bank of America stock is currently trading at the 12-month trailing price-to-tangible book (P/TB) of 1.63X. This is below the industry’s 2.13X. This shows the stock is inexpensive currently.
Price-to-Tangible Book (TTM)
Image Source: Zacks Investment Research
BAC Trading Above the Key Moving Average
Technical indicators suggest continued strength for BAC. The stock is trading above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability.
50-Day & 200-Day Moving Average
Image Source: Zacks Investment Research
This underscores positive market sentiments and confidence in the company's financial health and prospects.
Parting Thoughts on BAC Stock
While the reasons behind Buffett’s stake sale are unknown, Bank of America's global presence, diversified revenues, branch openings and technological innovations to attract and retain customers provide a solid base for organic growth. Also, favorable estimate revision trend, clarity on the Fed’s rate cut path and inexpensive valuation make the stock worth considering.
However, challenges like high funding costs, subdued loan demand because of the expected economic downturn and higher regulatory capital requirements as part of the Basel 3 end-game cannot be ignored.
Hence, investors should consider these factors carefully and evaluate their risk tolerance before buying the BAC stock. Nonetheless, those who already own this Zacks Rank #3 (Hold) stock can hold on to it because it is less likely to disappoint over the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.