We recently compiled a list of the 8 Best Value Stocks to Invest In 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 the Best Value Stocks to Invest In According To Warren Buffett.
Is the market too expensive? That’s the big question with major market indices at all-time highs even as the Federal Reserve cuts interest rates to try and prevent the economy from plunging into recession. Warren Buffett, the most revered investor on Wall Street, is sending alarm bells as he continues to trim stakes in some widely held stocks on valuations getting out of hand.
Buffett’s actions in the market in recent months have raised concerns about the overall market outlook as the economic growth starts showing signs of weakness. Growth in the labor market cooling off and growing at the slowest pace since 2021, with the manufacturing sector also slowing, has raised serious doubts about the economic outlook.
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Consequently, the US Federal Reserve cut 50 basis points interest rate to support the struggling economy. Nevertheless, it is the fact that Buffett has yet to make a massive purchase or investment despite having close to $300 billion in cash reserves at his disposal, which continues to send jitters among the investment community.
Warren Buffett is known for his unwavering commitment to value investing, which is clearly shown through his investment holdings. When pitted against most of the top-tier hedge funds out there, the billionaire investor tends to purchase stocks and then holds on to them for years, if not decades, as part of his long-term holding strategy. Consequently, the best value stocks to invest in, according to Warren Buffett, have achieved incredible gains primarily through the appreciation of their share prices over time.
Since Buffett has always stuck to his value investing strategy that focuses on undervalued companies, suggestions that the market is too expensive have been quoted as one reason he’s gone entirely. There are also suggestions that the billionaire investor is waiting for the market to collapse from current highs before deploying the $300 billion at his disposal.
The Oracle of Omaha has already indicated in recent years that he does not see an abundance of value investment opportunities to pursue with the market at all-time highs. Nevertheless, Buffett’s portfolio still consists of stocks trading at some of the lowest price-to-earnings multiples that offer some of the best value investing opportunities.
Additionally, Buffett’s portfolio consists of companies showing tremendous upside potential in earnings and revenue growth. Consequently, according to Warren Buffett, the best value stocks to invest in are companies well poised to generate long-term value for shareholders.
While Buffett has been trimming stakes in some companies, it does not mean he no longer believes in their long-term prospects. Instead, the sell-off spree is part of the billionaire investor’s bid to lock in profits after one of the longest bull runs in recent history.
The sale also indicates how large some of his stakes in the company have become. Buffett had always advocated for locking in profits, having paid the price of not selling stakes in a giant beverage company when the stock stretched to 60 times earnings in the 1990s.
Even as the billionaire investor trims stakes, his portfolio remains well diversified in various sectors and poised to generate long-term value.
Our Methodology
We sifted through Berkshire Hathaway’s Q2 2024 13F filings and picked stocks that were trading at a forward P/E of under 15 and were expected to experience earnings growth this year. Finally, we ranked the stocks in descending order of their forward P/E ratios. We have also included Berkshire Hathaway’s stake and the number of hedge fund holders for each stock, as of Q2 2024.
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).
Bank of America Corporation (NYSE:BAC)
Expected Earnings Growth 2024: 6.20%
Latest P/E Ratio: 10.9
Warren Buffett’s Q2 2024 Stake: $41.10 Billion
Number of Hedge Fund Investors as of Q2 2024: 92
Bank of America Corporation (NYSE:BAC) is one of the best value stocks to invest in, according to Warren Buffett, owing to its status as one of the biggest banks in the US. While Buffett has been unloading stakes in the financial conglomerate, it does not mean its long-term prospects are doomed.
Bank of America Corporation (NYSE:BAC) is a favorite among hedge funds, with 92 funds holding stakes totaling over $48.1 billion in Q2 2024. Warren Buffett, a long-time admirer of banking stocks, particularly BAC, has maintained Berkshire Hathaway as one of the top shareholders with a $41.10 billion position.
The steepening of the yield curve is one factor that should work for Bank of America Corporation (NYSE:BAC) even as interest rates drop. After approximately two years, there is no longer an inverted yield curve, meaning that short-term Treasury bills now offer higher yields than their longer-term counterparts. Although it’s commonly believed that banks perform more efficiently in an environment with higher interest rates, this isn’t always the case.
Banks also require a steep yield curve because they typically borrow short-term and lend long-term. A steeper yield curve will lead to increased net interest income (NII), a primary source of income for Bank of America.
With a huge deposit base of almost $2 trillion, Bank of America Corporation (NYSE:BAC) revenues have increased by 11% over the past ten years. On the other hand, earnings are expected to increase by 6.20% this year, allowing the bank to continue rewarding investors with its 2.61% dividend yield. Additionally, it continues to trade at a discount with a price-to-earnings multiple of 10.9.
ClearBridge Value Equity Strategy stated the following regarding 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 5th on our list of 8 Best Value Stocks to Invest In According To Warren Buffett. 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.