Bank of America generally gets the lion’s share of bad press among banks in the media. In keeping with that trend, the company appeared on The Consumerist’s list of Worst Companies in America for 2012. At least it only came in second…Electronic Arts won the top spot. But while Electronic Arts is disliked, we could make arguments about which company the populous thinks is ‘worse’.
Not that Warren Buffet is concerned about that. His bet on Bank of America is working out just fine. Back in August of last year, he invested $500 billion in the company…on his terms. He got 50,000 preferred shares, and warrants to buy 700 million common shares at $7.14 (that option to buy is good for over nine more years). And shares are now trading over $9, and that’s almost 30% above that strike price of $7.14. Not bad for 7 months. But Warren Buffet can make an investment on terms that very few can get.
Most hated company or not, the stock is up 66% this year (and the financial sector has outperformed other sectors so far this year). The rise in share price after the bank passed the Fed’s stress test was enough to give it a buy signal. But I am looking at that signal with some skepticism…shares once traded over $53, and have spent the past few years hovering below $20…and I have to look at any signal in light of the fact that technically the stock is still down -81% over the past five years.