Still like Bank of America - woe is me!

by Wayne Ferbert on May 16th, 2012

At Buy & Hedge, we rarely take stock positions. We favor ETFs and broad indexes. We like indexes we can hedge. But occasionally, we take a stock position when the value looks too good to pass up. That was the case with Bank of America (BAC) when it traded around $6 to $7 in 2011.

We went on radio and TV and recommended it. Full disclosure: I still own it and so do our clients. So, some people are asking me with the pull back in financials since the JP Morgan blow up: do you still like BAC?

The answer is yes. My target on the stock was a long term target (ie, 3 years+). I still like it to unlock its full value potential and trade in the teens by 2014.

The chart below that I found on The Wall Street Journal just makes me feel even better about it. It trades at the biggest discount to book value compared to its peers. That discount is significant.

Some would look at this chart and contend: Band of America’s book value is the most mis-represented on that list because of its significant mortgage exposure. My answer is: so what if they are wrong by 50%. In other words, what if the real book value is half of what it is reported as because of the real value of the assets on their book. That means the Price to Book Value would be .74 instead of .37.

That still puts them in line with peers. To me, that is a reasonable cushion that I can invest in. Plus, I doubt the book value is off by a factor of 50%. So, I continue to like the investment – though it may be a painful couple of months!


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