Sometimes, when legendary investor Warren Buffett starts selling a stock he just keeps on going, much like the Energizer bunny of advertising lore. That’s what’s happening now.
Recall that there are two sides to Buffett’s conglomerate Berkshire Hathaway (BRK.B) . One side consists of private companies, such as Geico insurance and See’s Candies.
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The other is comprised of big equity stakes in blue-chip companies. Many individual investors have prospered by mimicking those investments.
On the stock front, Berkshire owns more than 45 positions with a market value of $318 billion. That’s equal to 32% of Berkshire’s $1 trillion market capitalization. So these investments matter for the company.
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Berkshire’s realized and unrealized gains on its stock holdings totaled $20.23 billion in the first half of this year.
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But Buffett counsels against relying on this metric, as unrealized gains/losses don’t necessarily mean much for Berkshire.
Instead, he recommends focusing on its price-to-book value ratio, which totaled 1.66 as of Oct. 21, up from the five-year average of 1.39. Book value equals a company's assets minus liabilities.
Berkshire’s biggest 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 Bank of America machinations
Berkshire has been slashing its position in Bank of America since mid-July. Last week, Berkshire unloaded about $370 million of shares, in its 16th round of selling.
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Buffett has now dumped more than $10 billion of BofA stock, pushing his stake in the company below 10%.
That’s important because investors with stakes above 10% must report their trades to the Securities and Exchange Commission within two business days rather than quarterly, as other institutional investors do.
Berkshire originally went below 10% earlier this month. But last week BofA announced it repurchased $3.5 billion of stock in the third quarter. That pushed Berkshire back above 10%.
BofA shares have dipped 4% to $42 since Berkshire began selling July 17. The KBW Nasdaq Bank Index gained 6% during that period. So Buffett’s moves may have convinced others to sell too.
He may have sold to take profit. BofA shares had soared 75% from last October until July 17. Berkshire also may be looking to push its stake in the bank below 10%, so that it doesn’t have to reveal its trades quickly.
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It’s also possible that Buffett will continue to sell BofA shares until he has eliminated the position. Berkshire has previously liquidated holdings in JPMorgan Chase, Wells Fargo, and US Bancorp.
Getting rid of shares slowly avoids pushing the share price down steeply through the sales themselves.
Morningstar’s take on Bank of America
Meanwhile, Morningstar analyst Suryansh Sharma is bullish on BofA stock, though he thinks it’s appropriately valued now.
He assigns the company a wide moat, meaning he sees it with competitive advantages that will last at least 20 years. Sharma puts fair value for the stock at $39.50, a bit below its level of $42.20 Tuesday.
“Bank of America reported a solid set of numbers in the third quarter,” he wrote in a commentary.
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“Investment banking continues to recover, asset valuations remain buoyant and trading revenue remains strong. And, most importantly, the macroeconomic consensus on a soft landing has strengthened the outlook for the next year.”
Looking at the bank broadly, “it has one of the best retail branch networks and overall retail franchises,” Sharma said. “It’s a Tier 1 investment bank and a top four U.S. credit card issuer.”
BofA also has a “solid” commercial banking franchise and vaunted wealth management firm Merrill Lynch, he noted.
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