Yahoo Finance Following Buffett? Prime Time for Bank of America ETFs
The investment strategies of billionaire Warren Buffett, the Oracle of Omaha, often serve as a guiding star for many investors. His recent moves have signaled a fascinating trend: a growing preference for Bank of America BAC amid a turbulent banking sector.
Warren Buffett's Increased Bet on Bank of America Amid Banking Unrest
Buffett's investment giant, Berkshire Hathaway (BRK-A) (BRK-B), offloaded $1.4 billion from Bank of New York Mellon (BK) and US Bancorp (USB) last quarter, continuing the trend of paring back on longstanding bank investments, per a Yahoo Finance article. However, in the midst of this banking upheaval that emerged in early March, Bank of America remains a shining exception.
During Berkshire's annual shareholders meeting, Buffett openly declared his continued support for Bank of America, despite his overall cautious approach to holding bank stocks. He further reinforced his stance by increasing Berkshire's holdings in Bank of America by 2% in the first quarter, even as the value of its total position in the stock dropped by $4 billion.
Buffett's backing of Bank of America isn't new; he invested $5 billion into the Charlotte-based bank back in 2011 when it was grappling with losses from subprime crisis. His recent endorsement not only underscores the strength of the bank's management, but also its potential for resilience in the face of ongoing economic challenges.
What Do Indicators Say About Back of America’s Value Status?
We all know that Buffett is a value-loving investor.Going by valuation metrics, the P/E (ttm) of BAC is 8.3 times versus the industry-average of 7.7 times. The forward P/E of BAC is 8.1 times versus the industry score of 7.5 times.
Though these measures point to a slightly higher valuation of Bank of America than the industry, a higher P/E is not always a sign of worry. It shows investors’ confidence in a particular stock among the bunch. Plus, we should not forget that the banking industry P/E is currently extremely low due to massive stock carnage caused by the regional banking crisis originating in March.
Investors should note that the return-on-equity of Bank of America is 11.7%, higher than the industry average of 10.9%. Plus, both return-on-assets of BAC is marginally higher than the industry measures. However, the estimated 3–5-year EPS growth of BAC is now 7% versus the industry measure of 9.3%. But the stock has a good dividend yield of 3.25% annually.
Investors should note that the BAC stock has a Zacks Rank #3 (Hold). It has a Momentum Score of A at the time of writing.
Are ETFs Better Bets?
Investors intending to follow Warren Buffett but still wary of the banking sector crisis may take the ETF route. This is because ETFs helps investors to mitigate one company’s average performance with the other companies’ stellar results.
Below we highlight a few ETFs with heavy exposure to Bank of America for investors seeking to bet on the stock with much lower risk.
Invesco KBW Bank ETF KBWB – BAC takes about 9% weight.
First Trust Nasdaq Bank ETF FTXO – BAC takes about 8.6% weight.
iShares U.S. Financial Services ETF IYG – BAC occupies about 5.94% weight of the fund.
Bottom Line
As Buffett continues to show faith in Bank of America while other banking stocks are being sold off, it might be a strong signal for investors to reassess the potential of this banking giant. After all, following the footsteps of the Oracle of Omaha has historically been a profitable strategy.
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Bank of America Corporation (BAC) : Free Stock Analysis Report
Invesco KBW Bank ETF (KBWB): ETF Research Reports
iShares U.S. Financial Services ETF (IYG): ETF Research Reports
First Trust NASDAQ Bank ETF (FTXO): ETF Research Reports
