2. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Bank of America Corporation (NYSE:BAC) is one of the oldest banks in the world. It was founded in 1784, right at the time of the American revolution, and it provides services to tens of millions of customers all over the globe.
Bank of America Corporation (NYSE:BAC) has been slowly but surely de-risking its loan portfolio over the years. It has reduced credit card loans by 50%, home equity loans by 80%, and construction and development loans by 70%. These three are the riskiest assets for a bank to own in an economic downturn, and given that one appears to be just on the horizon, Bank of America Corporation (NYSE:BAC) just might have acted in time.
Bank of America Corporation (NYSE:BAC)’s shares have also provided the strongest return among its peers, gaining 386% over the past ten years, and its non-performing assets and loans percentage are also the second-lowest among its peers. Bank of America Corporation (NYSE:BAC) also pays a 22 cent dividend for a 2.86% yield.
Insider Monkey’s 895 hedge fund survey for Q2 2022 revealed that 99 had held a stake in Bank of America Corporation (NYSE:BAC).
Bank of America Corporation (NYSE:BAC)’s largest investor in our database is Warren Buffett’s Berkshire Hathaway which owns 1 billion shares that are worth $31 billion.
Artisan Partners mentioned the company in its Q2 2022 investor letter. Here is what the fund said:
We made only one new purchase during the quarter, initiating a position in Bank of America (BAC). As one of America’s largest banks, Bank of America Corporation (NYSE:BAC) is second only to JPMorgan Chase (JPM) in size and is probably its closest peer. Both are well-run banks, but compared to JPM, since the GFC, BAC has retired more shares, grown EPS faster and currently has more capital and a lower dividend payout. We are attracted to BAC’s strong capital base, high capital generation capacity, large loan loss reserve, low (~50%) loan/deposit ratio, short duration investment securities book, and low dividend payout that provides financial flexibility. BAC has a less volatile earnings stream than JPM with lower capital market sensitive exposures. Additionally, BAC is rigorously stress tested by the Fed every year in quantitative and qualitative fashion. Warren Buffett’s Berkshire Hathaway, which we hold in the portfolio, owns 12% of BAC. He petitioned the Fed to own more than 10%, so he clearly likes it. Bank stocks were strong gainers in 2021 on the prospects of higher rates boosting net interest margins, but the stocks pulled back in the first half of 2022 on economic concerns. We believe BAC has massive scale advantages, should benefit from increasing interest rates, particularly in the 2-year part of the yield curve, and should grow over time with the economy. The economic environment is highly uncertain, but current consensus includes the provision for losses more than doubling and capital markets activity slowing. Against that backdrop, our purchase price equated to about 8.5X our estimates of “mid-cycle” earnings. With leading businesses, a double-digit ROE, a prudent capital return strategy and a strong balance sheet, we believe this entry point offered a solid long-term value.”
