The Market's Up and B of A Is Down: What's Up With That?

The Dow Jones  (DJINDICES: ^DJI  ) is up today. So is the S&P 500  (SNPINDEX: ^GSPC  ) . But Bank of America  (NYSE: BAC  ) ? It took a dive, shedding nearly 5% on the day.

What the heck is going on?

The driver behind the drop appears to be the downgrade from Moshe Orenbuch. The Credit Suisse  (NYSE: CS  ) analyst took the stock down a rung from outperform to hold, essentially arguing that the stock's gains have outrun the company's progress and priced in more improvement than the CS team is expecting over the "near to intermediate-term."

Is Orenbuch and crew on point here? Perhaps. B of A's stock did double last year, and a higher price means lower potential returns for investors. So whether we're calling B of A's stock an "outperform" or a "hold," one thing for sure is that investors can expect much lower returns than they could just a year ago.

Looking ahead, though, the stock is still trading at a 10% discount to tangible book value. In the years before the credit crisis, B of A traded at a multiple of its tangible book value -- in 2006 that multiple was more than 4. It'd be nuts to expect it to snag a multiple anywhere near that today. However, to expect it to further close the gap on JPMorgan Chase (NYSE: JPM  ) , with a price-to-tangible book value multiple of 1.24, and Wells Fargo  (NYSE: WFC  ) , with a P/TBV of 1.67, isn't quite as crazy.

Further, when an analyst is talking about the "near to intermediate term," that often translates to "over the next year." That's pretty typical for Wall Street views, but Foolish investors tend to hold a longer-term perspective. Shifting to a longer view, I see a lot more opportunity for optimism -- think about a day when major, crisis-era settlements are a thing of the past and Project BAC has had more of a chance to slim down Bank of America's costs.

Does today's drop provide a good opportunity to buy? Before you take that plunge, I invite you to take a closer look at Bank of America's big picture in our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.


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  • Report this Comment On January 10, 2013, at 7:20 AM, macmachine37 wrote:

    I think I will buy more Bank of America. Credit Suisse just wanted a quick gain on this. I hate investors does something like this. When you thought your stock prices is going up, you buy more. Then someone has to pull something out like this.

    There should be rules for people who are investing with high amount of money on stocks.

    Please stay away from BAC and good luck.

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