CHICAGO, Aug. 26, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), Apple (Nasdaq: AAPL) and Berkshire Hathaway (NYSE: BRK.B).
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Here are highlights from Thursday's Analyst Blog:
BAC Boosted Billions by Buffett
Bank of America (NYSE: BAC) today is the beneficiary of one of the best investing life-lines known to markets -- besides the Federal Reserve. Warren Buffett is taking a $5 billion confidence-boosting stake in the troubled titan of lenders.
For that investment, Berkshire Hathaway gets perpetual preferred stock with an annual dividend of 6 percent, and a 5% redemption, plus warrants to buy 700 million shares at about $7.14 each.
As the housing market continues to soften and Countrywide legacy foreclosures and settlements for defective mortgages mount, BofA assets have deteriorated further this year than any holder's worst nightmare. Institutional investors, fearing a capital crisis for the bank may have actually helped create one by selling the stock and cutting the company's market value in half.
From the Oracle of Omaha himself...
"Bank of America is a strong, well-led company, and I called Brian Moynihan to tell him I wanted to invest in it. I am impressed with the profit- generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them."
According to Bloomberg.com...
The lender surged 21 percent to $8.49 in New York Stock Exchange composite trading at 9:31 a.m., leading the KBW Bank Index (BKX) higher. Berkshire climbed 0.8 percent to $107,232.
Buffett Knows Banking
We have come to know plain-spoken, long-term value investor Buffett as one to only buy companies he understands and believes in. Thus his large holdings of Wells Fargo (NYSE: WFC) and his $5 billion life-line for Goldman Sachs (NYSE: GS) during the credit crisis of 2008.
Buffett has probably been impressed with Moynihan's efforts to clean up the mess left him by Ken Lewis and the disastrous forced-purchase of Countrywide. The new leader has been aggressively selling underperforming assets and settling legal claims.
This month, the company announced it agreed to sell the bank's Canadian credit card business, with about $8.6 billion in loan balances, and plans to leave the U.K. and Irish card markets.
And since we all know that Buffett steps in only when a deal is both safe and sweet, all the speculation this week about BofA being massively undercapitalized comes into to question.
Henry Blodgett made headlines with his off-hand, rumor-spurring comment that the bank was short $200 billion. I saw an interview where he explained he was just making up rough estimates based on a hypothetical question like, "What if 10% of BAC's $2 trillion balance sheet is questionable?"
The real gold in the deal might be what smart insiders smile and assume: Buffett knows that the financial powers-that-be in the US (The Fed and the Treasury) will not allow BAC to go under. They are beyond too-big-to-fail. Buffett has the best put ever on this deal.
Countrywide: Aptly Named, And Not in a Good Way
Besides BAC's troubles with this gigantic loan portfolio of subprime slime, the Countrywide lending practices of the last decade were to some significant degree responsible for the entire housing/banking meltdown in 2007-08.
If this is obvious, read on. If you are saying, "How do you know?" read on as well.
In 2009, I had the good fortune to meet and speak with a Midwest Federal Reserve board member. He explained to me that what Countrywide did in areas like Minnesota was pursue home loans so aggressively that they squeezed out all competition. This allowed them to not only get the "okay" loans but to essentially swallow up entire counties with mortgage qualifications based on standards like respiration and/or the ability to walk.
This in turn forced the regional and small-town banks to take on even more aggressive lending deals, like the fourth motel at a highway interchange. You can see how this snowballed and made subprime "country-wide" in no time.
Confidence is Golden
This deal for Buffett is probably also a legitimate and forceful way for him to bring calm to skittish markets. He has some risk of course. But these are the kinds of calculated bets you make when you manage his kind of money, in his kind of "long-term."
Speaking of confidence that investors have in leaders, how badly did you think Apple (Nasdaq: AAPL) would tank today on the resignation of its chief magician? His visionary leadership is one of those intangibles that is hard to put a price on.
So while Jobs is probably worth several times his weight in gold to many investors, I picture him saying, "If you think I'm the Messiah, then you must also believe that I am wise and all-powerful enough to have put things in place to run this magic show beyond my day-to-day involvement."
I am a buyer of Apple on any Jobs-related dip. Some day in the not-too-distant future I may have the same choice with Berkshire Hathaway "B" shares (NYSE: BRK.B). But that's another story altogether. I don't know how you replace Buffett's intuitive market magic.
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