Why I am long BAC?

GA

Why I am long BAC or US banks for that matter? US banks got hit hard during the financial crisis. Bank of America got fine billions of dollars by the US government and legal issues continue to pill on, until recently, the legal issue has died down. BAC was down to as low as $5.xx and bounced as high as $18.xx. You’d think to yourself why on earth I would buy into a company that have so much legal issues and low dividend pay 0.20$/ year?

bank-of-america-stadium-charlotte-north-carolina-panthers

1. Stock spin off – The same day that Bank of America bought Merrill Lynch people have already been speculating the day that Merrill Lynch would get spin off and be it’s own entity again. I’d say, this won’t happen until interest rate rise and the banking and lending unit start making more money again.
2. Invest with Warren Buffet – he bought a whole chunk of BAC special stock, but could convert at about $7/share, he hasn’t done this, but when he does, BAC might take a little hit, but in the meanwhile, you and warren buffet are on the same team :).
3. Dividend growth – as of last quarter, BAC make $0.25 assuming no growth, earning for the year is $1, dividend pay out is 20%, BAC might raise it to the original 2014 plan 8 cents which could be $0.32 or 32% of earning. That is still below the average dividend pay in the financial sector or dividend paying companies.
4. Rising interest would increase banking profits. Right now Wells Fargo and US bank corp lend out a lot more money than BAC, when the interest rise, BAC will have more free capital to lend at higher interest rates, could translate to more profit.

5. A wellrounded portfolio needs to have some growth stocks and dividend growth. BAC happens to fit in both of the categories. It has the potential to double in price from the current 16.xx to $34.xx in 2 years period.

More profit, more dividend and future spin off talk. It seems unorthodox for some people to invest solely base on speculation, but the US economy is improving, the US government at some point has to raise interest to control inflation and balance the budget, pay off debt. It’s inevitable.

Companies Price P/E Forward P/E Dividend % Payout
BAC 16.61 46.14 9.95 0.2 1.2
WFC 55.33 13.5 12.16 1.4 2.5
C 51.2 23.28 8.77 0.04 0.1
JPM 59.67 11.28 9.28 1.6 2.7
STI 41.57 12.87 11.71 0.8 1.9
BBT 38.28 13.92 11.29 0.96 2.5
USB 45.07 14.63 12.62 0.98 2.2

Big oppotuinty to initiate a banking position ahead.

Invest but not without cautions as this articles reported 3 banks may fail this year.

Hacker has stolen $1 billions from big banks, so brace for a drop as bank stocks dropping as the numbers come out. Here is the article.

Bank of America to face another legal charge

Greece situation might effect the broader market as they have just reject the bailout deal. I guess Germany won’t let them, they want out of the EU. This could potentiate 10-20% market drop if they succeed moving out of the EU, a 1-6% stock market gain if they extended further. Time frame is 2 more weeks before Greece default.

What do you think? Are you long or short or hold BAC? What’s your take?

Disclosure: I’m long BAC and WFC.

GA

2 Comments

    • Thank you for commenting. I hope they’ll do as planned. 😛
      From paper, CitiBank even looks better than BAC. But I like BAC. I used CitiBank services before and I hated them so bad, that I don’t want to have anything to do with them. I believe good customer services would provide better and longevity relationship. CitiBank fell short on it for me.

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