15 Reasons Bank of America Is a Buy Right Now

Big banks are enjoying some heavy media attention lately as they power through Fed-induced stress scenarios designed to test their strength and mettle. The cause of some of the most intense tongue-wagging is Bank of America (NYSE: BAC  ) , as droves of analysts weigh in on the question of the day: Will the nation's second largest bank finally be able to pay out a decent dividend?

There's no doubt that there is strong interest in B of A right now, and investors drove the share price back up above $12 in the hours before the stress test results were released.

If you are wondering whether or not Bank of America is on its way out of the doldrums in which it has been mired for the past few years, read on. I've pulled together more than a dozen good reasons why B of A is a buy right now -- and it really wasn't that difficult.

1. Valuation. Using the most recent quarterly data, Bank of America currently trades for about 60% of book value, compared with the industry average of 95%, and a tangible book value of 95%, versus a 133% average. Compared to JPMorgan Chase's (NYSE: JPM  ) 98% and 140%, Bank of America looks like a bargain.

2. Earnings. Well, OK, they're not great, but this is an issue of which CEO Brian Moynihan is acutely aware -- and is trying to turn around. He has acknowledged that B of A has been lax in the mortgage lending department and has taken steps to increase that lucrative activity. Doubtless, JPMorgan and Wells Fargo's (NYSE: WFC  ) impressive revenues from mortgage origination didn't escape his notice.

3. CEO Brian Moynihan. History shows that Brian Moynihan is exactly the type of leader that Bank of America needs to pull it out of the melancholy it has been experiencing. It's been done before, and in my opinion, Moynihan will the guy to do it once again. Not to mention that great hair.

4. B of A is working its way out of the mortgage muddle. Bank of America made a Herculean effort on this point within the past year, settling past and future put-back issues with Fannie Mae, as well as other mortgage-based claims -- including one regarding shabby foreclosure practices, signed onto along with fellow miscreants JPMorgan, Wells, Citigroup (NYSE: C  ) , and Ally Financial. Of course, the threat of more lawsuits hangs in the air, but progress has definitely been made.

5. Delinquent mortgages are down. In the bank's fourth-quarter earnings transcript, management noted that 60-day delinquent loans have decreased, and the bank expects that trend to continue throughout 2013.

6. The bank is slimmer than ever. Moynihan's selling off of non-core assets has so far netted the bank a cool $60 billion, about $12 billion of which has gone toward building capital reserves.

7. Capital reserves are higher than most in the industry. Moynihan has so far pushed his bank's capital reserves to new heights – 11.1% for the Tier 1 Basel I ratio, and 9.3% for Basel III. Only Keycorp (NYSE: KEY  ) has higher ratios in both categories.

8. B of A is trying to improve customer relations. This issue is a real stickler, and it will take time to get the new customer-friendly initiative off the ground. But Moynihan is making a valiant effort, and I'm certain results will follow.

9. Management is stable. Unlike the undulations at Citigroup since the exit of Vikram Pandit, and the upheavals at JPMorgan after the London Whale, B of A has had a pretty steady management profile.

10. Brand value. According to the latest BrandFinance report, Bank of America ranks fourth in the top 500 Most Valuable Banking Brands in the world.

11. The image-polishing is working. A recent Harris Poll shows that the efforts expended by B of A to improve its reputation are working, with the bank showing the biggest one-year improvement in that metric of any other institution.

12. B of A Merrill Lynch is bringing home the bacon. BAML is the third most active in the mergers and acquisitions biz so far this year, behind JPMorgan and Goldman Sachs (NYSE: GS  ) . The unit has been recognized for excellent service three years in a row by Global Finance magazine.

13. Mobile banking is a priority. B of A recognizes the value of mobile banking, both as a customer service and as a cost-cutter. As the bank has closed branches, it has kept on top of mobile and currently boasts over 10 million mobile customers.

14. It is too big to fail, and therefore privy to all the benefits therein. In addition to bailouts, B of A has access to that nice, big financing discount available to TBTF banks, and will also, with its brethren, be able to rest easy knowing that the government is disinclined to file criminal charges against banking behemoths, lest the economy suffer.

15. A decent dividend is likely in the offing. B of A did quite well on the Fed's stress tests, besting JPMorgan, Morgan Stanley, and Goldman in every stress metric. Could a tasty dividend be on its way?

Bank of America's stock doubled in 2012, and, with the stress test win, it will doubtless go higher still. 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, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


Read/Post Comments (7) | Recommend This Article (15)

Comments from our Foolish Readers

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 10, 2013, at 2:06 PM, arcoftheuniverse wrote:

    It's shameful that you guys identify #14 as an asset to the company, when it's a liability to the country. I'm eager to see $BAC follow suit with $C and not announce a dividend. There's such high expectations for it here that it'll crush the stock when it doesn't materialize.

  • Report this Comment On March 10, 2013, at 2:51 PM, MRWheat1 wrote:

    Just like Citi bank, Wachovia, 5/3, Wells Fargo, the common share holder were screwed royally and in Citi's case the Preferred share holders were double screwed. I wouldn't put a single dime of my money in these criminal, crony capitalist companies. They lent large sums of money to people who had no jobs, lied on there mortgage applications, had credit scores of 200 and below, the kicker, THEY KNEW BETTER, but did it to make money for the criminals who run these institutions. Has anyone notice not one banker went to prison yet, but there are 100's of them who should be sharing a cell block with Berny Madoff. It's your money, I know how to invest mine and it's not with these criminals.

  • Report this Comment On March 10, 2013, at 3:35 PM, jdftn1947 wrote:

    unless you are one of the millionaires already involved in this I bet those of us common folk will lose in the long run ..

    BOA is a heartless, cruel, I dont care about you bank .. of course they are going to pay a dividend at the expense of all those the foreclosed on without bothering to help .. and with all the government monies they got .. they should be ashamed of themselves .... how many stories have we read of the dirty dealings, etc of BOA . having had the experience of trying to buy one of their homes that was a short sale then another that was in foreclosed on and they way they didnt want to work with us .. because they were profiting from letting them sat unsold .. BOA isnt your friend

  • Report this Comment On March 10, 2013, at 5:54 PM, Rusty56 wrote:

    Sounds like the first 3 posters are either really stupid, lost their homes because they overbought, or lost their teller jobs and are now sour. BAC will be much higher in a couple of years and I'm willing to bank on it!

  • Report this Comment On March 10, 2013, at 7:34 PM, Pb578 wrote:

    If I could, I would throw a hand full of pennies at the face of CEO and here is your lousy dividend I don't want it

  • Report this Comment On March 11, 2013, at 8:46 AM, mastedon2 wrote:

    I bought a foreclosure from BofA. Easy dealings, they fixed some of the issues that the inspector found, and didnt have to, it being a foreclosure.

    Banking with them however, I did not like the fees being charged on basic checking accounts, so switched to a credit union. This was one of their biggest dummy moments.

    In @ 6, and holding long.

  • Report this Comment On March 11, 2013, at 6:52 PM, Sotograndeman wrote:

    Talk about behind the curve! The time to buy BAC was late 2011, when it was hated by Mr Market and the herd and trading at 5$ - and Bruce Berkowitz was screaming its value from the rooftops. Buffett bought in near its nadir.

    Today everyone and his brother sees the prospects, even TMF. There's still upside for BAC, but as Buffett likes to say: You pay a high price for a cheery consensus.

    We don't need 15 reasons for any investment. Silly. Generally there's one key parameter. For BAC it's earnings power.

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