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Warren Buffett plans to boost Bank of America stake! Time to buy?

October 18, 2019 09:05

When Warren Buffett speaks the financial world listens. After all, the Oracle of Omaha is the most successful investor in the world. It will come as little surprise then that shares in Bank of America rose more than 2% after Buffett's company announced they approached the US Federal Reserve for permission to raise their stake in the American banking giant - possibly creating some very interesting trading and investing opportunities.

Buffett and the Bank of America

Did you know that Warren Buffett's holding company, Berkshire Hathaway, owns more than $27 billion worth of Bank of America shares (as of 14 October 2019)? It's the second-largest holding in Buffett's portfolio and he wants more. In fact, Buffett's company has applied for approval from the Federal Reserve to increase its stake in the bank past 10% ownership which is a limit that prompts a regulatory review.

There are some analysts who believe that Bank of America shares are currently undervalued, suggesting Buffett might see some additional value in owning more shares of the bank. It is also fitting just several days after the announcement the bank posted better than expected earnings of $0.56 per share against the $0.51 per share expected.

So what is the historical share price of the bank telling us? Let's find out!

How to Trade Bank of America Shares

With Admiral Markets you are able to speculate on Bank of America's share price by using a product called CFDs, or Contracts for Difference. Essentially, this enables traders to go long and short on an instrument, using leverage.

Below is the long-term monthly chart of Bank of America's share price:

Source: Admiral Markets MetaTrader 5, Bank of America, Monthly - Data range: from 1 September 2003 to 17 October 2019, accessed on 17 October 2019 at 8:33 pm BST - Please note: Past performance is not a reliable indicator of future results.

After the significant drop in the bank's share price from $55 to just $3 from 2006 - 2009, it has so far recovered roughly half of the drop. In fact, since 2009 the bank's share price has been on a steady rise higher with some large dips along the way.

Price has remained around the $28 per share price level for much of 2019 which is interesting when looking at the analyst ratings of the bank from Markets Insider, which shows that ratings from 27 different brokers show the lowest target price for the stock at $28, a median target price of $33 and a high target price of $44. It's worth noting that these analyst ratings can change at any time.

Of course, someone like Warren Buffett tends to only invest in stocks if he can hold them for a very long time, at least 5 years or more. Now that the stock has recovered half of its drop from 2006 to 2009, can it regain the other half? The weekly chart is currently showing a channel, where price could break to the upside, as shown below:

Source: Admiral Markets MetaTrader 5, Bank of America, Weekly - Data range: from 26 December 2004 to 17 October 2019, accessed on 17 October 2019 at 8:55 pm BST - Please note: Past performance is not a reliable indicator of future results.

The two descending, parallel lines in the chart above represent a chart pattern called a channel. The pattern suggests a breakout to the upside is likely. However, traders will be analysing price carefully to see if price can hold above the level. If it can it could be a sign that the share price of Bank of America may keep on rising. A break back below it would deem it a false breakout sending the share price lower.

Whatever the outcome, Bank of America is high on the watchlist for many traders and investors. Does it make it to yours?

One way to test your theories and trading ideas is to use a demo trading account which allows you to speculate on the markets with zero risk! Click the banner below to open your free virtual trading account today:

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3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.

4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter "Author") based on personal estimations.

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