How do we determine whether Bank of America Corp (NYSE:BAC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
With that in mind, it appears that investors who are in the know are becoming hopeful about Bank of America’s prospects. The number of bullish hedge fund positions rose by five during the fourth quarter, with it being in 113 hedge funds’ portfolios at the end of December. Likewise, the value of those investors’ collective holdings rose by about 5% to $6.8 billion. The hedge fund ownership ranked Bank of America as the seventh-most popular stock overall, as well as the most popular financial stock, as it overtook Citigroup Inc (NYSE:C).
Follow Bank Of America Corp (NYSE:BAC)
Follow Bank Of America Corp (NYSE:BAC)
Why do investors love Bank of America? For one, it’s now trading at a very attractive P/E of 10.50, and a price-to-book ratio of 0.60. This was referenced by billionaire Ken Fisher of Fisher Asset Management in a recent article posted on Interactive Investor. Mr. Fisher expects big things from Bank of America in 2016, having this to say about the company in which he owned 43.09 million shares of on December 31
“The UK often provides sneak previews of US financial phenomena (and vice versa). Both operate more similarly than either fathoms. To me, the ending of Britain’s “stronger bank balance sheets at any cost” policy foretells a similar loosening of American loan-growth constraints – and increased earnings. Hence Bank of America (BAC) should positively surprise, ending its sideways wiggles. It’s our overall best-postured big retail bank, yet sells at 11 times my 2016 estimate.”
It should be noted that despite that glowing endorsement and Mr. Fisher’s large BAC holding, it’s not actually his top financial stock pick. Mr. Fisher had more valuable positions in both JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). It should also be added that the stock has fallen quite heavily since that article was posted on January 7, by about 16%, making those valuations even more attractive.
After slashing its holding in Bank of America by 64% during the third quarter, Bruce Berkowitz’s Fairholme was back to buying Bank of America in the fourth quarter, raising its stake by 20% to 16.81 million shares. Mr. Berkowitz had this to say about BAC in a letter to investors on July 17, 2015:
“The same should be true for Bank of America (20.6% of the Fund portfolio), which today has over $250 billion in shareholder’s equity – more than any other company in any industry in the United States. A focus on growing revenues while reducing operating costs (particularly litigation-related expenses) should result in rising profitability. With a Tier 1 capital ratio well above stringent regulatory requirements and “global excess liquidity sources” that would sustain operations for 40 months, Bank of America has regained the financial strength to support much higher earnings, yet its stock price also remains below book value.”
Despite that, there are some fears that the investment bank’s push into auto lending may be coming at a bad time, given the rising rate of uncollectable auto loans held by the banking industry, which rose to $1.1 billion in the fourth quarter, up by 39% over the past four years according to Federal Deposit Insurance Corp.
With all of this in mind, we’re going to review the fresh trading action regarding Bank of America Corp (NYSE:BAC).
How have hedgies been trading Bank of America Corp (NYSE:BAC)?
Heading into 2016, a total of 113 of the hedge funds tracked by Insider Monkey were long this stock, a rise of 5% from the end of the third quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or had already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mr. Fisher’s Fisher Asset Management has the largest position in Bank of America Corp (NYSE:BAC), worth close to $725.2 million, accounting for 1.4% of its total 13F portfolio. Sitting at the No. 2 spot is Boykin Curry of Eagle Capital Management, with a $532.6 million position; the fund has 2.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Richard S. Pzena’s Pzena Investment Management, Daniel S. Och’s OZ Management, and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC.
As aggregate interest increased, specific money managers were breaking ground themselves. Three Bays Capital, managed by Matthew Sidman, initiated the most outsized call position in Bank of America Corp (NYSE:BAC). Three Bays Capital had $260.9 million invested in the company at the end of the quarter. Keith Meister’s Corvex Capital also initiated a $158.2 million position during the quarter. The other funds with new positions in the stock are Rob Citrone’s Discovery Capital Management and John Lykouretzos’ Hoplite Capital Management.
Let’s now review hedge fund activity in other stocks similar to Bank of America Corp (NYSE:BAC). These stocks are The Walt Disney Company (NYSE:DIS), Visa Inc (NYSE:V), Chevron Corporation (NYSE:CVX), and The Home Depot, Inc. (NYSE:HD). All of these stocks’ market caps are closest to BAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DIS | 51 | 3725016 | 3 |
| V | 101 | 9387910 | -1 |
| CVX | 44 | 1478288 | -1 |
| HD | 62 | 3718999 | -7 |
As you can see these stocks had an average of 65 hedge funds with bullish positions and the average amount invested in these stocks was $4.58 billion. That figure was $6.80 billion in BAC’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 44 bullish hedge fund positions. Compared to these stocks Bank of America Corp (NYSE:BAC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers and that it sports an attractive valuation, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
