November had no shortage of major news headlines. The 2024 election results propelled stocks to new highs; corporate earnings have, collectively, come in better than expected; and the October inflation report didn’t upend the two-year (and counting) bull market rally.
But among this sea of data releases, investors may have overlooked what might be the most important of all: the Nov. 14 deadline to file Form 13F with the Securities and Exchange Commission (SEC).
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No later than 45 calendar days following the end to quarter, institutional investors with at least $100 million in assets under management are required to file a 13F. This form provides a snapshot of which stocks Wall Street’s greatest money managers purchased and sold in the latest quarter (in this instance, the September-ended quarter).
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
When it comes to billionaire investors, none receive more attention than Berkshire Hathaway‘s (NYSE: BRK.A)(NYSE: BRK.B) aptly named “Oracle of Omaha,” Warren Buffett. When you oversee a greater than 5,800,000% cumulative return in your company’s Class A shares (BRK.A) since taking over as CEO nearly 60 years ago, you’re bound to garner a following.
However, no two billionaire money managers think (or invest) alike. For instance, Warren Buffett’s favorite stock to buy during the third quarter, beloved consumer brand Domino’s Pizza, was dumped by eight other billionaire asset managers.
It’s not uncommon for brand-name companies to become billionaire battleground stocks — and that’s exactly what we’re witnessing right now with money-center financial institution Bank of America(NYSE: BAC). Whereas Buffett hasn’t been able to hit the sell button fast enough, billionaire Ole Andreas Halvorsen at Viking Global Investors has been repeatedly mashing the buy button.
Even though the Oracle of Omaha is an unabashed long-term optimist and has cautioned investors not to bet against America, what he does over shorter timelines doesn’t always mesh with his long-term message.
For eight consecutive quarters, Buffett and his team have been decisive net sellers of stocks, to the tune of $166.2 billion. While a sizable chunk of this selling can be attributed to top holding Apple, Form 4 filings with the SEC show that Berkshire Hathaway has disposed of more than 266 million shares of Bank of America since July 17. This works out to around $10.5 billion in aggregate proceeds and a roughly 26% reduction in Berkshire’s stake in one of America’s leading money-center banks.
One potentially benign reason to sell more than a quarter of what had been Berkshire Hathaway’s No. 2 holding by market value is tax implications. Buffett opined during Berkshire’s annual shareholder meeting in May that the corporate income tax rate was likely to climb. He used this as a roundabout justification for locking in some gains with Apple. The idea being that taking gains at a favorably low tax rate would, in hindsight, be viewed favorably by Berkshire’s shareholders.
But there may be more to this selling activity than simple profit-taking or tax implications.
For example, the stock market is historically pricey, and Buffett’s persistent selling for two years looks to be a clear effort to build Berkshire Hathaway’s cash position in anticipation of an eventual move lower in equities. The “Buffett Indicator” hit its highest level on record in November, while the S&P 500’s Shiller price-to-earnings (P/E) ratio, which is also known as the cyclically adjusted P/E ratio (CAPE ratio), is at its third-highest reading during a continuous bull market, when back-tested 153 years. Value is tough to come by at the moment.
To build on this point, Bank of America stock isn’t the screaming bargain it once was. When Buffett initially invested in BofA preferred stock in August 2011, Bank of America was trading at a paltry 38% of its book value (i.e., a 62% discount to book value). As of the closing bell on Nov. 29, shares were valued at a 34% premium to its listed book value.
The other possible concern for Warren Buffett and his top advisors, Ted Weschler and Todd Combs, is the prospect of falling interest rates. Bank of America is the most interest-sensitive of America’s largest banks by total assets. While the steepest rate-hiking cycle in four decades, from March 2022 through July 2023, added billions of dollars in net interest income to BofA’s bottom line, rate cuts would be expected to adversely impact its earnings per share (EPS).
Image source: Getty Images.
On the other end of the spectrum, billionaire Ole Andreas Halvorsen, who oversees more than $27 billion at Viking Global Investors, can’t stop buying shares of Bank of America.
During the September-ended quarter, Halvorsen and his advisors opened a position in BofA by purchasing 19,959,530 shares. On a cost basis, we’re talking about a roughly $800 million investment, with Bank of America going from not owned, as of June 30, to Viking Global’s 12th-largest holding, as of Sept. 30. To be fair, Halvorsen is a big fan of financial stocks and has recently piled into Visa and U.S. Bancorp, as well.
The primary lure of financial stocks is that they’re cyclical. Even though slowdowns and recessions are an inevitable part of the economic cycle, the nonlinearity of this cycle works in favor of patient investors. Since periods of growth last significantly longer than recessions, bank stocks like BofA are able to prudently grow their loan portfolios over time, often increasing their book value in the process.
Halvorsen and his team are probably also optimistic about the Fed’s approach to the current rate-easing cycle. Though lower interest rates would be expected to adversely impact Bank of America’s interest income, the nation’s central bank seems intent on slow-stepping the rate-cutting process. The more telegraphed the Fed is with its monetary policy actions, the better BofA can position its loan portfolio to optimize interest income collection.
Don’t overlook the role Bank of America’s capital-return program has played in boosting shareholder value, either. When the U.S. economy is firing on all cylinders and BofA passes the Fed’s annual stress test, it’s not uncommon for the company’s board to return in excess of $20 billion via dividends and buybacks to shareholders. Bank of America has reduced its outstanding share count by 27% over the last seven years, which has had a positive impact on the company’s EPS.
Bank of America has done a phenomenal job controlling its expenses, too. Aggressively investing in digital banking is allowing the company to close or consolidate some of its physical branches. Over the trailing-three-year period (ended Sept. 30, 2024), the percentage of loan sales that were digitally enabled jumped from 43% to 54%.
Lastly, there’s a good chance banking regulations will remain somewhat lenient with the incoming Donald Trump administration, which is a positive for BofA.
Though Bank of America stock isn’t historically pricey like the broader market, it’s sporting a valuation — 13 times forward-year earnings — where upside may be modest over the next couple of years.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America, U.S. Bancorp, and Visa. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, Domino’s Pizza, U.S. Bancorp, and Visa. The Motley Fool has a disclosure policy.
