I was never a massive "buy American" consumer - it just wasn't the way I was raised. I was from a family that bought the products that worked and were the cheapest; and nine times out of ten, those aren't American made products.
However, I'm starting to feel a whirl of patriotism in me as I have been recently bullish on two true American companies, both of whom I think are setting up for an "old school" boom all over again - Ford (F), and Bank of America (BAC).
It's not a big surprise that I'm bullish on Bank of America. I've penned several bullish articles on them over the past few months, dating back to before their recent earnings and suggesting BAC would break $14 and keep trending up after earnings.
I've made the case for ignoring the Bank's legal woes, as CEO Brian Moynihan puts his head down and gets them taken care of - slowly, but surely - one at a time.
I've also argued that the company's recent closings and layoffs, although sad for the people involved, should be taken as a sign of progress - as the company gets leaner, meaner, and more appealing as an investment.
Recently, I urged potential investors to ignore the DJIA shakeup and invest in BAC due to the fact that it's heading in the right direction - not because of whether or not it's a Dow Component.
The stock's performance has been impressive, to say the least. BAC has yielded, not counting its dividends, 58.2% in the last 12 months, and a healthy 12.8% in the last three months alone.
The stock has been a great investment vehicle over the past few years, and nobody knows that more than Warren Buffett, who holds warrants in the $7 region. For those of you keeping score at home, that's roughly a 100% gain on his $5 billion investment.
What better way to have a true American bull story, than to have the oracle himself backing your bet? You couldn't script it any better, and this morning's news should be giving BAC investors warm and fuzzy feelings about their investments heading into the weekend.
One of my major past arguments for sticking with BAC as an investment has been basically "riding the coattails" of Buffett's decision making.
A previous article on Bank of America was strictly in regards to Warren Buffett seemingly holding on to his paper profit in the company's stock after meeting with BAC's CEO, Brian Moynihan. I stated the following:
Perhaps the lunch and meet up with Moynihan was a litmus test for Buffett, to try and get a grasp on his outlook - if not on the company - then at least how he feels about the sector and the economy from a macro sense. Any stock moves in the coming days from Buffett will be very telling. If he reports to have sold, he clearly wasn't happy with how things went. Should we hear silence, we can assume what we're assuming now: Buffett is still riding the Bank of America wave. QTR is bullish on Bank of America here, as well.
After that article, I penned another on August 30th, noticing the lack of any type of selling news from the Buffett camp:
Well, we've learning nothing of the selling sort from Buffett since then, reaffirming my contention that he wanted to "ride the wave" and keep his money with the bank. Since that article on August 20th, the stock has been performing well, eventually getting ready to test levels above $14.25 and beyond.
This morning, my argument just got a big fat gold star.
The following was reported by Bloomberg:
Warren Buffett, who got 10-year Bank of America Corp. (BAC) warrants as part of a $5 billion investment in 2011, said he plans to hold them until near their expiration before converting the contracts to common stock.
"We'll exercise them probably the last month, which would be eight years or so from now," Buffett, 83, told CNBC in an interview broadcast today. "There's no reason to exercise them sooner. There would be if there were a high dividend on the common or something, so it's conceivable. But basically we love the position of being an owner."
Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A) took a $5 billion preferred stake in Bank of America, with an annual dividend of 6 percent, after the lender's stock fell more than 45 percent amid losses on mortgages. The warrants allow Berkshire to buy 700 million shares of the Charlotte, North Carolina-based bank for $7.14 each. The stock closed at $14.61 yesterday and has a quarterly dividend of a penny a share.
Bank of America Chief Executive Officer Brian T. Moynihan, 53, who joined Buffett in the interview, said he plans on retiring more expensive capital before exercising an option to redeem the preferred stake for $5.25 billion.
"We're trying to get 8 percent, 9 percent instruments out" of the capital structure first, before dealing with Buffett's preferred investment, Moynihan said. "There will be some day that we'll talk about this, but that's far out there."
Bank of America is the second-largest U.S. bank by assets.
Holy smokes! Eight years from now? Talk about a vote of confidence in the company - who knows what could happen in the next eight years: another war? Europe's economy crippling? Kim Kardashian elected to the Senate?
This is simple about as bullish of a statement as you can make on a company - "there's no reason to exercise them sooner" and "we love the position of being an owner". Bank of America longs, here's your early Christmas present - feeling good about riding with the greatest investor in history? I would be.
However, Mr. Market has BAC down a couple pennies today right after the market opened, clearly not feeling the same way as Mr. Buffett. I'd argue that this presents a great buying opportunity for people that want to get in on a stock for the long-term (oh, about eight years or so).
Although risk continues to exist, specifically in dealing with rising interest rates and downsizing the mortgage sector of the company in the midst of the housing revival, I'm fairly confident that BAC will hold its ground for shareholders. I also think it's likely that BAC will, at some point going forward, increase its dividends.
Following Mr. Buffett and my original argument on Bank of America, I'm aggressively reaffirming my bullish sentiment on the company, as I see the same long term value as my good friend Warren.
As always, best of luck to all investors.