We recently compiled a list titled Buffett Stock Portfolio: Top 10 Stock Picks for 2024. In this article, we will look at where Bank of America Corporation (NYSE:BAC) ranks among the top 10 stocks in Buffet’s portfolio.
Warren Buffet is one of the most accomplished investors in the history of Wall Street. According to Bloomberg’s Billionaire Index 2024, the Oracle of Omaha has a net worth of $143 billion, making him the ninth richest person in the world. His wealth would have been much more had he not decided to donate most of his vast fortune to charities. Since 2006, Buffet has donated over $55 billion to various charitable organizations, with a majority of the gifts going to the Bill & Melinda Gates Foundation.
Buffet rose to prominence in 1965, after transitioning his investment firm into a conglomerate that held stakes in companies belonging to a broad range of industries. Between then and 2023, his firm earned average annual returns of 19.8%, outperforming most stock indices that delivered returns around the 10 percent mark during this period. However, this year, Buffet seems to be in a defensive mode and is currently in the news for his sell-off spree, significantly reducing his investments in several notable companies.
There have been mixed opinions about Buffet hunkering down on stocks. Edward Jones analyst, Jim Shanahan, said that the actions make him ‘concerned’ about Buffet’s outlook for the stock market and the American economy. In contrast, Daniel Ives, a Wedbush analyst, is less worried and believes that despite the selling spree, Berkshire still holds the top positions in those stocks by large margins, which should not be viewed as a ‘smoke signal for bad news ahead’.
So what will Warren Buffet do with all that cash? Andrew Bary, the associate editor at Barron’s, recently stated that the billionaire has been on the look for a major acquisition for some while now, which has so far proven elusive. He believes the Berkshire CEO may just hold the cash for some while, earn interest on Treasury Bills, and wait for potential opportunities to grab in the stock market.
Another factor that has likely contributed to Warren Buffet dumping stake in some of his top stocks is the speculation around the increase in capital gains tax. The debate on the tax rate has been on for some time now and has even become a talking point in the run-up to the presidential elections. Vice President, Kamala Harris, during a speech in New Hampshire this month, proposed to raise the long-term capital gains tax for wealthy individuals to 28%.
The current tax rate is 21% when a gain is realized. Massive gains over the long term result in a large tax. Warren Buffet invested in stocks he is currently selling a long time ago, and hence, is sitting on handsome gains. The rationale behind selling these stocks could be to capitalize on the gains as much as possible on the current low tax rate, instead of paying hefty taxes later if the rate were to be increased.
Methodology
We scanned Warren Buffet’s portfolio, as of June 30, 2024, and picked the top 10 stocks according to their stake value. The figures were sourced from the Insider Monkey Database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Bank of America Corporation (NYSE:BAC)
Stake Value as of Q2 2024: $41,076,524,279
Bank of America Corporation (NYSE:BAC) is one of the largest financial institutions in the United States, serving individuals, small and medium-sized businesses, large corporations, and governments through a wide range of banking services.
It is among the stocks affected by Warren Buffet’s ongoing selling spree, as the billionaire sold batches of BofA shares this year. Despite that, Bank of America is still one of the top picks from the Buffet portfolio. As of June 30, 2024, the billionaire had $41 billion of investments in the company, accounting for 14.67% of his overall portfolio.
During Q2, the company reported robust financial results, with revenue totaling $25.38 billion. This was up one percent year-over-year, driven by increased non-interest income, asset management and investment banking fees improvements, and a surge in trading revenue. Net income for the quarter was recorded at $6.9 billion, representing an EPS of $0.83, which beat analysts’ expectations by three cents.
There were also some bearish trends during the quarter. Bank of America saw its global banking results decline, with earnings for the quarter totaling $2.1 billion, down 20% from last year. This was attributed to lower net interest income and higher provision expenses during the quarter. Global banking revenues also dropped 6% due to deposit rotation and the impact of interest rates. On the other hand, while the company’s financial position remains strong – with $3.26 trillion in assets and a CET1 ratio of 11.9% – overall deposits declined $36 billion during the quarter due to seasonal customer payments of income taxes.
However, the company’s future outlook is still promising, with forecasts of low-single-digit growth in deposits and loans during the back half of 2024. Moreover, the management also anticipates net interest income to grow in the third and fourth quarters of the year, provided the Federal Reserve cuts interest rates. Investors remain confident about the company’s prospects ahead. Diamond Hill Large Cap Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its Q2 2024 investor letter:
Other top contributors in Q2 included Bank of America Corporation (NYSE:BAC) and Extra Space Storage. Shares of financial services company Bank of America rose in the quarter as it looks increasingly likely net interest income will inflect and begin growing again in 2024’s back half and into 2025.
According to Insider Monkey’s database for Q2 2024, 92 hedge funds held investments in the company, up from 82 during the previous quarter.
Overall, BAC ranks 2nd among the Buffett Stock Portfolio: Top 10 Stock Picks for 2024. While we acknowledge the potential of BAC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.
