When Warren Buffett dramatically reduced his Apple holdings, Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, followed suit. She agreed with Buffett that now is the time to take profits. Especially because I thought the iPhone 16 with AI wouldn’t be the “game changer” Apple was hoping for. But when it comes to another stock-selling Oracle of Omaha, Link decided to tap it.
That stock is Bank of America.[/hotlink]Buffett’s Berkshire Hathaway dumped it all at once. The conglomerate sold about $9 billion worth of BoA stock from July to September, despite still holding a large position. link said luckBut she holds the stock.
“A lot of people are optimistic about finances,” said Link, who manages a $3.5 billion stock portfolio. “I have been optimistic about our finances over the past year. [I] At the beginning of the year, things were a bit wrong. It took a little while to see some catching up.”
Bank stocks have surged following Trump’s election, and investors expect his second administration will ease regulations and unlock pent-up M&A demand. Bank of America’s stock has risen more than 10% since Election Day, essentially mirroring the recovery of the S&P 500 industrial index.
Link admits he doesn’t like being on the wrong side of one of America’s most respected investors. Buffett’s $5 billion investment in BofA shortly after the financial crisis served as a major vote of confidence in America’s second-largest bank and BofA’s CEO, Brian Moynihan.
Of course, Buffett’s stock selling is unlikely to be an indicator that he believes BofA’s fate is doomed. After all, it remains Berkshire’s third-largest holding.
The main motivation behind the sale appears to be to bring Berkshire’s stake below the 10% threshold that requires prompt disclosure of purchases and sales. When BofA bought $3.5 billion of stock in October, putting Berkshire above that figure, Buffett’s conglomerate sold another $370 million of stock.
Still, Oracle currently has a record $325 billion in cash and Treasury bonds, raising suspicions that he is increasingly concerned about risk and believes the stock market is overvalued.
“I worry when I’m not worried,” Link said of his mindset. Because that means we are complacent.”
Why banks are optimistic
Still, she has a generally rosy outlook on markets and banks. Besides talk of slightly better growth, more M&A, and less regulation under Trump, there are factors independent of the incoming president that are fueling her optimism.
First, she noted that bank stocks are cheap, with BofA and many of its competitors trading at about 12 to 13 times forward earnings. The corresponding multiple for the S&P 500 is currently just under 24.
Meanwhile, an inversion of the yield curve would be a huge boost to bank profits. As Link said, their toughest business is borrowing money at short-term interest rates (often through deposits) and then lending that cash out at higher long-term rates.
“And as the steep yield curve continues, net interest income starts to improve,” she said. “Net interest margins are starting to improve.”
Finally, Link is also optimistic about changes in the proposed Basel III endgame reforms for the world’s largest banks. An initial version of the incoming rule would have raised capital requirements to 19% for institutions like JPMorgan Chase and BofA, but an updated proposal put forth by the Federal Reserve would lower that number to 9%. This means that these banks will have to raise more funds to lend than initially expected.
“That’s why I think this is more than just deregulation,” Link said of his bullish stance on finance. “It’s about different things all coming together.”
Let’s see if Oracle misses this.
