WINDERMERE, Fla. (Stockpickr) -- Legendary investor Warren Buffett has once again jumped in to potentially save Wall Street from another banking crisis.
Buffett's Berkshire Hathaway (BRK.A) has announced today that they will invest $5 billion in Bank of America (BAC) to help the bank deal with losses related to subprime mortgages. This move is seen many market players as a vote of confidence in the battered banking giant. It's also similar to what Buffett did with Goldman Sachs Group (GS) back in September 2008 during the credit crisis when he took a $5 billion stake in the investment bank. Keep in mind that after Buffett stepped into Goldman, the stock fell 58%.
Berkshire has agreed to buy 50,000 preferred shares that will pay a 6% annual dividend. Bank of America has the option to buy back the shares at any time for a 5% premium. Bank of America shares were initially up over 20% as the stock printed a daily high this morning at $8.80 a share. Since that opening pop, the stock has now pulled back to below $8 a share.
Related: 5 Bank Dividend Stocks Ripe After the Pullback
This major move by Buffett could be a signal that value investors are finally starting to see big opportunity in the U.S. banking sector. It could also easily start a big trend change in investor sentiment towards the battered banking stocks from bearish to bullish. If that trend change does indeed occur, then it's time for traders to start hunting the beaten up banking sector for heavily shorted bank stocks. Heavily shorted bank stocks could see large spikes higher if the value players jump into the sector in the coming days or weeks because of Buffett's move. All the market has to do is perceive that Buffett's BAC investment is a bottom for the bank stocks. Then the bears that're heavily short the sector will start to cover their positions and buy back some of the most beaten down bank names. |
Select the service that is right for you!
COMPARE ALL SERVICESAction Alerts PLUS
TRY IT FREEJim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
Product Features:
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Dividend Stock Advisor
TRY IT FREENew! $49.95/yr
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Product Features:
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Stocks Under $10
TRY IT FREEDavid Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.
Product Features:
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
- Weekly roundups
Real Money
TRY IT FREE24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
Product Features:
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
Real Money Pro
TRY IT FREEAll of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
Product Features:
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Options Profits
TRY IT FREEOur options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
Product Features:
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV
