SECURITY ANALYSIS: WARREN BUFFET’S 5 BILLION INVESTMENTS Harvard Case Solution & Analysis

SECURITY ANALYSIS: WARREN BUFFET’S 5 BILLION INVESTMENTS Case Solution

Problem Statement

Warren Buffet invested 5 billion in BAC (Bank of America Corporation).The investor made a decision to invest in the bank’s stocks and he made this huge investment in perpetual preferred stocks. Moreover, at times the decision was seen as a suspicious decision and afterwards that decision showed a tremendous performance while the share prices increased and the other securities started to decline. The paper will analyze the performance of the investment which Warren Buffet made in order to earn profits in the worst situations since the decision was quite difficult at that time to invest such huge amount in the stocks as well as the market was crashed at that time. We will now analyze the performance of this investment and also go through how this investment gave benefits to Warren Buffet.

Answer no 1

Comparison of BAC stocks with GS and CG

Appendix 1 shows the comparison of the BAC stocks with the Goldman Sachs and City group.From the table which is made on the assumptions it shows that the prices have been averaged over the last several years after the crash of the market and from there it can be seen that GS has the highest stock prices among the three companies,which is $ 128.72 however, the price of the BAC was 11.39 and for CG was 18.48. This shows a significant gap in the stock prices of these three companies as well as the evaluation of the stock has been made by four different criterions, which were EPS, Dividend, BVPS and PER.
If we talk about the EPS, then we can see that GS has the highest EPS which is 15.22, and if we see this in case of BAC then it was 1.36 and for CB it was 4.43 which indicates that GS has the highest profits in past few years however, CG has shown a low but good profitability since its EPS was 4.43 which is far more higher than BAC’s stocks which were 1.36. The reason behind the low profitability of BAC stock may include the issuance of perpetual stocks in in a huge amount and collecting a large amount of over $50 billion.

As far as the dividends are concerned, we can see that the dividend for both of the companies including the BAC and CG was .12 and the dividend which was given by the GS group to its equity holders was .43 on average. Over hereit can be seen that the stock of the GS group was far higher than the stocks of BAC and CG.
Moreover, when we see towards the BVPS of the three companies, then it is showing that the BVPS of GS was higher as compared to CG and BAC, which was 171.45 and the CG group showed the BVPS of 69.03 which was higher than BAC stocks of 22.41.
Finally, if we see towards the PER, thenthe PER of the GS was 12.01and the PER of the BAC was 14 and for CG it was 11.92 the only criteria of assessment which showed a higher performance for the BAC stocks, the other criteria are showing a lower performance of the BAC.
Overall, it can be said that the performance of the stocks of GS has been good in the last few years after the crash of the market, however the performance of the BAC and CG stocks is not satisfactory. In conclusion we can say that the only measure by which the stocks of BAC are consistent is the PER, however the other three criterions showed a lower performance of the BAC stocks which were the dividends, BVPS and EPS. The data for this analysis was taken from these sources (Finance, Yahoo Finance, 2015)(Stocks, 2015)................

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SECURITY ANALYSIS: WARREN BUFFET’S 5 BILLION INVESTMENTS

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