We recently compiled a list of the 12 best long-term stocks to buy according to Warren Buffett. In this article, we are going to take a look at where Bank of America Corporation (NYSE:BAC) stands against the other long-term stocks to buy according to Warren Buffett.
Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investment career that began in 1965, the ‘Oracle of Omaha’ has averaged annual returns of 19.8%, trumping a gain of 9.9% for the S&P 500 over the same period.
The market-beating performance has propelled Buffett to the top of the charts as one of Wall Street’s most revered and followed investors. His investment portfolio is always tracked as investors scan for potential market opportunities.
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Likewise, Buffett is one of the most successful investors in Wall Street’s history, having accumulated a fortune of $138 billion. His total assets might have been significantly higher if he hadn’t donated large sums to different charitable causes.
Market participants have always applauded his disciplined approach, which entails a long-term perspective. His investment firm has become the latest company to cross the $1 trillion mark on market cap, underlining Buffett’s impressive stock-picking skills. According to Cathy Seifert, Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to Buffet’s investment firm’s financial strength and franchise value.
Buffett’s investment strategy has remained constant throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett seeks out companies with a lasting edge over competitors, like a well-established brand, high barriers to entry, and a large and loyal customer base, and he buys into them at a price that ensures a safety margin.
Likewise, the billionaire investor is well-known for his cautious stance on investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors such as retail, insurance, and finance. He is recognized for his commitment to long-term investments, holding onto companies for extended periods, and steering clear of frequent trading. This strategy enables him to benefit from the compound interest effect and allows the companies he invests in to mature and produce significant profits.
Buffett’s cautious approach is evidenced by the fact that his investment firm had over $180 billion in cash as of the end of the first quarter. The cash reserves were expected to swell to over $270 billion as of the end of June.
The cash reserves have been building up as the billionaire investor only invests in finding attractive deals with eye-popping returns. In a 2023 letter to shareholders, Buffett reiterated he did not see the possibility of eye-popping performance.
Buffett has consistently included dividend stocks in his portfolio, which is a strategy that has effectively generated consistent passive income. This year alone, his investments are projected to generate around $6 billion in dividend earnings.
Nevertheless, Buffett has also been in defensive mode in recent months, opting to reduce stakes in some companies. He has trimmed holdings by up to half in some tech giants, concerned by valuations getting out of hand after a year of gains fuelled by the artificial intelligence frenzy.
While valuations have gotten out of hand going by the blockbuster gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its monetary easing spree with a cut of interest rates, equity is poised to receive a significant boost.
The best long-term stocks to buy, according to Warren Buffett, are companies well poised to benefit from interest rates dropping. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, generating more shareholder value.
Our Methodology
To compile our selection of the best long-term stocks to buy according to Warren Buffett, we began by analyzing Berkshire Hathaway’s 13F portfolio and chose to highlight the stock holdings that have remained within the portfolio for at least 5 years. Next, we assessed the number of hedge fund investors associated with each stock, as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett stakes in the companies.
At Insider Monkey, we are obsessed with 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).
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Bank of America Corporation (NYSE:BAC)
Warren Buffett’s First Major Purchase: 2017
Berkshire Hathaway’s Latest Investment Stake: $41.08 Billion
Number of Hedge Funds Holding Stakes as of Q2: 92
Bank of America Corporation (NYSE:BAC) is one of Warren Buffet’s longest holdings in the financial services sector. The company offers banking and financial products to individuals, businesses, institutional investors, and large corporations through its subsidiaries.
Bank of America Corporation (NYSE:BAC) is one of the oldest banks in the US, with a history dating back to 1904. Its track record in standing the test of time has always made it a firm favorite for the billionaire investor. Additionally, it is a leader in the US retail deposits, a clear indication of trust among consumers in the US and 35 countries.
Additionally, the financial conglomerate has consistently generated profits. Over the last ten years, its net profit margin has typically been around 25%. This financial success enables the company to keep distributing dividends. For investors who prefer stocks that offer a steady passive income, Bank of America Corporation (NYSE:BAC) could be attractive due to its 2.46% dividend yield, which affirms why it is one of the best long-term stocks to buy, according to Warren Buffett.
It boasts a total asset value exceeding $3.3 trillion, establishing itself as a significant player in the financial sector and underscoring its solid foundation. Additionally, it holds a substantial deposit portfolio valued at nearly $2 trillion. Although it is gradually growing, these expansions are not significant enough to alter its position. Over the decade from 2013 to 2023, Bank of America Corporation (NYSE:BAC) experienced a modest increase in revenue of 11%.
Buffett’s investment firm Berkshire has sold about 5.8 million shares of the financial services company for about $228.7 million. The transaction is believed to have occurred between September 6 and September 10 2024. Buffett still remains the biggest shareholder in the bank.
The stock trades at a price-to-earnings (P/E) ratio of 13.6. While nearly double what it sold for late last year, it is expected of a financial institution that has benefited from higher interest rates.
During June 2024, 92 out of the 912 hedge funds part of Insider Monkey’s research were the firm’s investors. Bank of America Corporation (NYSE:BAC)’s largest shareholder is Warren Buffett’s firm, courtesy of its $41.08 billion investment.
Here is what ClearBridge Value Equity Strategy said about Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
Overall BAC ranks 2nd on our list of the best undervalued cyclical stocks to buy. 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, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.