5 Reasons a Bear Can Be Bullish on Bank of America

I took this on as a personal challenge. Being religiously bearish on Bank of America (NYSE: BAC  ) , when my editor initially pitched this story idea, I rejected it out of hand. What could I possibly say about B of A that was in any way, shape, or form positive, let alone bullish?

But the notion kept coming back to me, and I finally decided to pursue it with two goals in mind: (1) perhaps a reader who's overly bullish on the superbank might get a more balanced perspective, and (2) perhaps a Motley Fool writer who's zealously bearish on the country's second-biggest bank might get a more balanced perspective, as well.

Without further ado, then, here are five reasons this bear found to be bullish on B of A.

1. Stunning 2012 stock performance
To fans of the bank, this is no secret, but for any new readers, it's well worth noting: B of A doubled its stock price in 2012. Smarties who bought or held stock at the start of last year surely watched with glee as the price rose from $5.81 to $11.61, for a return of precisely 100.17%.

And while even a bear like me can't argue with numbers like that, I will argue that B of A's share price had fallen so far, it pretty much had nowhere to go but up. Financials were the best performing sector of 2012 for the S&P 500, clearly rebounding after years in the post-financial crash basement.

As an example, Citigroup (NYSE: C  ) returned 39.64% to its shareholders last year -- not 100.17%, but not bad either.

2. A really inspiring (or really terrifying) valuation
B of A's price-to-book ratio is currently 0.59. That's either really great, or really scary.

It's really great if you believe the superbank has completely turned itself around -- cleaning up its balance sheet and refocusing its business model. If you believe this, you believe -- at a P/B of 0.59 -- B of A is a steal.

If, like me, you don't entirely believe the bank has squared away all of the above, you see a P/B of 0.59 as a big red light, not a green one. Wells Fargo (NYSE: WFC  ) has a P/B of 1.30, telling me nobody is seeing any giant bogeymen lurking in the bank's operations.

3. B of A is slimming its workforce
In September 2011, announced it would lay off 30,000 workers in the following few years. That's 10% of its workforce. 

Having gone through layoffs myself and watched my father go through them when I was growing up, let me be the first to say how much I detest them. But B of A, along with many of its peers, got so big and so unwieldy in the 1990s and 2000s that cuts were almost inevitable.

The cuts are part of a bigger plan by CEO Brian Moynihan to streamline the bank's operations, an unarguable necessity. JPMorgan Chase (NYSE: JPM  ) just announced it would be cutting up to 17,000 jobs -- again, cutting out housing boom-and-bust related bloat. These are necessary, if tough, moves on both B of A and JPMorgan's part. 

4. B of A might be nearing the end of its crisis-related payouts
The superbank just settled with government-owned housing giant Fannie Mae for more than $10 billion to settle soured mortgages, again left over from the housing boom. Some analysts -- smarter than I, no doubt -- have hailed this as the potential end of B of A's crisis-related troubles, predicting the bank will be able to really reach its full potential now that the pesky financial crisis is behind it.

But the other side of the story, New York State's attorney general has just announced he is "probing the [bank's] purchase, securitization and underwriting of home loans and mortgage securities." Ah, the financial crisis: It's the gift that keeps on giving.

5. B of A has a CEO who seems to be on his game
Reportedly, Brian Moynihan took on the job of B of A CEO when few others wanted it, valiantly (and for good recompense, I'm sure) undertaking the job of streamlining and refocusing the leviathan known as Bank of America, cutting costs and people as he deems necessary.

And the bank is unarguably in better shape than it was before he came on as CEO. There's no arguing Moynihan is a better CEO than his predecessor, Ken Lewis, who made the Countrywide Financial acquisition that has caused no end of trouble. B of A bear that I am, I have nothing bad to say about Moynihan and think he's doing a good job overall.

Final Foolish thought
There you have them: Five reasons this bear can be bullish -- to some degree at least -- on Bank of America. It was a good investing exercise for me, and I hope it was the same for you. It's very Foolish to always keep and open mind and challenge one's viewpoints.

As noted, Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank's operations: giving you three reasons to buy and three reasons to sell. To claim your copy, simply click here now


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2013, at 1:55 PM, lpr61 wrote:

    As a long time shareholder, I can see how in your eyes, as CEO, Brian Moynihan is better than Ken Lewis. However, it is worth mentioning that BofA had their hands tied by regulators as to the total pay compensation package that could be offered to a CEO at the time Moynihan was appointed. TARP had not been paid back at the time. I believe that the Chinese Construction Bank investment came about under the reign of Ken Lewis. The stock price rose above $40/share with a price to earrings of 12 under his reign. Reasonable dividends were paid like clockwork under the reign of Ken Lewis. Once Brian Moynihan returns the stock price to Book Value, re-instates a reasonable dividend and initiates a massive stock by back program I may agree with you.

  • Report this Comment On March 09, 2013, at 5:29 PM, XMFGrgurich wrote:

    lpr61, thanks for chiming in. All points duly noted. Again, I'm bearish on the bank, but did this as a way to challenge myself as well as other investors.

    Also, can any of the big banks go back to the way things were before the crash? I don't think so. I think we're embarking on a new normal right now.

    Cheers.

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