Bank of America Shares Exploded Higher: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of troubled Bank of America (NYS: BAC) charged as much as 26% higher today before cooling off to a 10% gain on word of an investment in the company by Warren Buffett.

So what: Fools have been debating each other and, in the case of fellow Fool Matt Koppenheffer, himself, about the future of Bank of America lately. Today, Buffett told us he thought the company was undervalued by buying $5 billion of preferred stock.

Now what: The capital infusion is a big boost of confidence for Bank of America, which has been under the gun. And like Goldman Sachs and General Electric during the height of the recession, there's no better man to have in your corner than Buffett when times get tough.

But like those two deals, Buffett isn't giving his money away for free. He is getting a 6% dividend on his preferred shares and warrants to buy a cool 700 million shares of stock at $7.14 each. At the current price of $7.73, that's a $413 million profit already. No one said it wasn't good to be Buffett.

Interested in more info on Bank of America? Add it to your watchlist.

At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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