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Warren Buffett's Berkshire dumps bank stock before earnings

As you’re probably aware, there are two sides to the conglomerate Berkshire Hathaway ( BRK.A ) , which is led by investment icon Warren Buffett.

One side consists of private companies, such as Geico insurance and See’s Candies. The other side consists of large equity stakes in blue-chip companies. Many retail investors have done well copying those holdings.

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As for stocks, Berkshire ( BRK.B ) owns more than 45 positions with a market value of $311 billion. That’s equal to 32% of Berkshire’s $979 billion market capitalization. So these stocks are a big deal for the company.

Berkshire’s realized and unrealized gains on its stockholdings totaled $20.23 billion in the first half of this year.

But Buffett advises against focusing on this metric, as unrealized gains and losses don’t necessarily mean much for Berkshire.

Instead, he recommends looking at its price-to-book-value multiple, which was 1.62 as of Oct. 7, up from the five-year average of 1.39. Book value equals a company's assets minus liabilities.

Berkshire’s largest holdings include:

  1. Apple ( AAPL ) , market value: $90 billion.

  2. American Express ( AXP ) , market value: $41 billion.

  3. Bank of America ( BAC ) , market value: $31 billion.

  4. Coca-Cola ( KO ) , market value: $28 billion.

  5. Chevron ( CVX ) , market value: $18 billion.

Related: Analysts revamp stock price targets on top Warren Buffett stock (hint: It's not Apple)

Buffett’s activity on Bank of America

Berkshire has been paring its position in Bank of America since mid-July. Last week, Berkshire shed $383 million of shares, one of its smallest discards.

Buffett has now unloaded more than $10 billion of B of A stock in 14 rounds of sales. That overall move has lowered his stake in the company to 10.1%.

Investors with stakes above 10% of a company must report their trades to the Securities and Exchange Commission within two business days rather than quarterly, as other institutional investors do.

B of A shares have dropped 8% to $40 since Berkshire began selling July 17. The KBW Nasdaq Bank (stock) Index barely changed during that period. So Buffett’s moves may have persuaded others to sell, too.

Related: Warren Buffett buys a beautifully cheap stock

He also may have sold to take profit. B of A shares had soared 75% from last October through July 17. Berkshire also may be looking to push its stake in the bank below 10% so that it doesn’t have to quickly disclose its trades.

It’s also possible that Buffett will continue to sell B of A shares until he has eliminated the position. Berkshire has previously liquidated holdings in JP Morgan Chase, Wells Fargo and US Bancorp.

Getting rid of shares slowly avoids pushing the share price down steeply through the sales themselves.

Morningstar’s take on Bank of America

Meanwhile, Morningstar analyst Suryansh Sharma is bullish on Bank of America stock, though he thinks it’s appropriately valued now.

He assigns the company a wide moat, meaning he sees it with competitive advantages that will last at least 20 years. Sharma puts fair value for the stock at $39.50, close to its level of $39.93 Tuesday.

“After years of issues following the financial crisis of 2008, Bank of America has emerged as one of the preeminent U.S. banking franchises,” he wrote in a commentary.

Expert Stock Picks:

“The bank has one of the best retail branch networks and overall retail franchises. It’s a Tier 1 investment bank and a top four U.S. credit card issuer.”

In addition, B of A has a “solid” commercial banking franchise. And it owns the wealth-management firm Merrill Lynch, which has turned into one of the country’s leading brokerage firms, Sharma noted.

While Bank of America is unlikely to catch up to banking industry leader JP Morgan, “with its scaled and integrated retail and commercial offerings, Bank of America remains in an enviable competitive position,” he said.

The bank is scheduled to report third-quarter earnings next Tuesday.

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The author owns shares of Bank of America.