Warren Buffett’s $800 million BofA bet is likely winner: Bill Brewster

  • Warren Buffett recently spent more than $800 million boosting his Bank of America stake.
  • The famed investor and Berkshire Hathaway CEO bought low as he expects the bank to eventually rebound from the pandemic, Bill Brewster of Sullimar Capital Group told Business Insider.
  • “Bank of America is a well-oiled machine, trading at a very reasonable price,” he said. “Buffett is looking at the long-term earnings power of the franchise.”
  • Read more key insights from our interview with Bill Brewster here.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett recently bought more than $800 million worth of Bank of America stock, boosting his Berkshire Hathaway conglomerate’s stake in the banking titan to north of 11%.

The billionaire investor seized the chance to bolster his position in a quality company on the cheap, Bill Brewster, a Berkshire shareholder who runs Sullimar Capital Group and cohosts the “Value: After Hours” podcast, told Business Insider in a recent interview.

“Big banks are one of the best bets in the market at the moment,” he said. “Bank of America is a well-oiled machine, trading at a very reasonable price on a normalized earnings basis.”

Bank of America’s shares have tumbled about 32% since the start of this year, and currently trade at less than 9 times the bank’s adjusted earnings per share (EPS) in 2019. The average EPS of S&P 500 companies is over 20.

Berkshire counted Bank of America, Wells Fargo, JPMorgan, US Bancorp, and BNY Mellon among the 12 largest holdings in its stock portfolio at the end of March.

The significant exposure to banks is weighing on its stock price. However, Buffett’s increased bet on Bank on America suggests he’s bullish on an industry recovery from the coronavirus pandemic in the coming years.

“The entire market seems to be worried about the credit risk and interest-rate risk at big banks,” Brewster said. “As he always does, Buffett is looking at the long-term earnings power of the franchise.”

“I see very few ways to lose wealth in banks at these levels,” Brewster continued.

“Will Bank of America be the best investment in the market?  Probably not,” he added. “Could you do a lot worse? Yes.”

Buffett’s Bank of America move came days after Berkshire struck a $10 billion deal for Dominion Energy’s natural-gas assets, and signaled its repurchase of more than $5 billion of its own stock between late April and July.

The flurry of transactions suggests Buffett — who didn’t deploy Berkshire’s huge cash pile during the coronavirus crash because there wasn’t “anything that attractive to do” — is finding bargains again.

“The market just didn’t serve up the opportunities given his circle of competence and size,” Brewster said about Buffett’s dry spell.

Now, Brewster continued: “Those opportunities are there and he is going after them.

“As a shareholder, it’s a wonderful thing to see.”

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