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- Warren Buffett bought Bank of America shares worth $ 2.1 billion for 12 consecutive trading days.
- It could take years for the billionaire and chief of Berkshire Hathaway to see a significant return, experts said on Wednesday.
- “He could buy it for another 12 days, he can’t really fix the headwinds that are challenging the banks,” CNBC employee Joe Terranova said in the “mid-term report”
- However, Mike Mayo, an analyst at Wells Fargo, said in CNBC’s “Trading Nation” that Buffett was “on the right track” as bank stocks could grow 50% in the next 18 to 24 months.
- You can find more stories on the Business Insider homepage.
Warren Buffett issued $ 2.1 billion in Bank of America shares on 12 consecutive trading days, increasing his stake in the banking giant to nearly 12% on August 4.
However, the famous Berkshire Hathaway investor and CEO may have to wait years for significant returns, experts said on Wednesday.
“He could buy it for another 12 days, he can’t really fix the headwinds that are challenging the banks,” said Joe Terranova, chief market strategist at Virtus Investment Partners, in CNBC’s “Mid-Term Report”.
Terranova described the bank’s substantial exposure to consumers through its retail banking business and lower trading sales compared to comparable companies as disadvantages of the stock.
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Berkshire is the largest shareholder in Bank of America, and Bank of America is the second largest stake in the company’s equity portfolio after Apple.
Bank of America’s interest income is also threatened by the Federal Reserve’s unprecedented efforts to prop up the US economy, Stephen Weiss, managing partner of Short Hills Capital Partners, said of the program.
“The Fed is out there saying we will adjust our inflation target. You will see low rates for a very, very long time,” he said.
“There is a new normal valuation for bank stocks and I think you are in the process of doing so,” added Weiss.
Bank of America shares fell about 29% this year and traded 9 times the bank’s earnings per share last year.
The outlook for bank stocks is inextricably linked to the overall health of the US economy, Sand Hill Global Advisors’ investment director Brenda Vingiello said in the “Mid Term Review.”
“I don’t think we will really see real traction in this group until an economic recovery scenario in which interest rates go up,” she said.
Sarat Sethi, managing partner of Douglas C Lane & Associates and shareholder of Bank of America, said he was more positive about Buffett’s recent bet.
The bank is “in a great place” and its shares are “traded at a very cheap value,” he said on the program.
“He’s doing the right thing to accumulate now so that if the stock price goes up he’ll be in a good position in it,” he added.
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Wells Fargo analyst Mike Mayo was even more optimistic about CNBC’s “Trading Nation” on Wednesday.
“We believe that bank stocks have the potential to grow 50% in the next 18 to 24 months,” he said, adding that Buffett’s purchases from Bank of America are “on the right track.”
The coronavirus pandemic has caused America’s largest banks to suffer the sharpest declines in net interest margin, traditional bank revenues, and total revenues in a century, Mayo said.
However, they are also gaining market share in areas like digital banking, and their size allows them to better control spending than smaller competitors, he continued.
“The foundations are strong and earnings could be like a coil spring if you are more positive about the economy or a vaccine,” Mayo added.
Here is a graph showing Buffett’s purchases of Bank of America stock and the bank’s stock price over the past few days: