Warren Buffett is widely acknowledged as one of the most renowned investors of all time, so it's never a bad idea for investors to keep an eye on his top holdings and to monitor their performance. You now have the chance to add one of Buffett's long-standing top holdings to your own portfolio near the lowest level it has traded at in the past year.
Bank of America (BAC -0.21%) is now trading at just above its 52-week low, creating an attractive entry point for investors who want to follow Buffett's lead and add this blue chip banking powerhouse to their own portfolios.
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Hovering near 52-week lows
Bank of America is down 27% year to date. Banking stocks in general are down as many investors fear that we are heading into a recession. For example, the SPDR S&P Bank ETF (KBE -0.31%) is down 16.6% year to date as of this writing.
The stock's losses seemed to compound when CEO Brian Moynihan said that he expects a mild recession in 2023 and that he is seeing signs spending is starting to slow. But this sell-off seems overdone. Investors have been discussing the possibility of a recession for most of 2022, so it's not as if this is breaking news.
This sell-off could be a good opportunity to buy shares of America's second-largest deposit bank, which has the top two positions in markets including home mortgages, home equity lines of credit (HELOCs), and small business lending. It also boasts large presences in the area of online brokerage and wealth management, and online brokerage through Merrill Lynch Wealth Management and Merrill Edge.
This is a massive bank with a large presence across a wide swath of end markets, giving it both the ability to cross-sell to its customers as well as the size and scale to benefit from cost advantages and invest in technology.
Buffett's favorite bank?
Buffett's Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) has a massive equity portfolio of nearly $300 billion, made up of 49 stocks. Bank of America is Berkshire's second-largest holding, accounting for a full 10% of its equity portfolio. Buffett owns over a million shares of the company, with a stake valued at over $30 billion.
Berkshire is by far Bank of America's largest holder, owning over 12% of the shares outstanding. Clearly Buffett is a big believer in America's second-largest money center bank, and this is a high-conviction investment for him and his team.
Quite a few other top value investors also hold large stakes in Bank of America. Buffett's longtime partner Charlie Munger has 42% of the funds in his Daily Journal vehicle invested in Bank of America. Other prominent investors (and Buffett acolytes) who have large stakes in Bank of America include Himalaya Capital's Li Lu, and Guy Spier of Aquamarine Capital. Bank of America makes up 25% of Li Lu's U.S. equity portfolio and 14% of Guy Spier's U.S. equity portfolio, according to their latest 13F filings.
A blue chip bargain
So what do Buffett and these other top value investors like about Bank of America? In addition to the market-leading positions in a wide array of end markets and scale advantages mentioned above, Buffett and his like-minded value investors know that many of the current woes look like they are already priced into the stock. This blue chip bank is trading at an attractive valuation of just 10 times earnings and an even cheaper 8.7 times forward earnings at time of writing.
Bank of America also trades at just 1.1 times book value. It trades at a slight discount to large U.S. banking peers like JPMorgan Chase (JPM 0.06%) and Wells Fargo (WFC -0.03%), and a more significant discount to the broader market.
In addition to this attractive valuation, Bank of America pays a dividend and yields an attractive 2.69%. The dividend looks safe and conservative from a dividend payout ratio perspective, with a payout ratio of just 27%. Furthermore, Bank of America has grown this dividend for nine years in a row, and it has grown at a steady if unspectacular rate of 17% over the past five years.
Bank of America isn't the type of investment that's going to be a multi-bagger in short order, but there's a reason that Warren Buffett has made it one of his top holdings for years. It's a blue chip bank with leading positions across a variety of sectors, and significant scale advantages, trading at a very attractive valuation. Its market-beating dividend adds to its investment appeal.
Down 30% year to date and not far off its 52-week low, this looks like a good entry point for investors who want to follow Buffett's lead and add this top U.S. bank to their portfolios. This is the type of stock that can serve as a cornerstone of your portfolio for years to come, just as it does for Buffett, Munger, and a cadre of other top investors.
