Blame it on Cyprus! The S&P 500 (SNPINDEX: ^GSPC ) was once more denied a new all-time high, as stocks fell on concerns that the eurozone crisis could be coming out of hibernation. The S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI ) lost 0.6% and 0.4%, respectively.
Unsurprisingly, the VIX (VOLATILITYINDICES: ^VIX ) surged 18% today, to close at 13.36. That's a massive move -- nearly in the top 1% of daily percentage increases going back to the inception of the index in January 1990 -- resulting from the exothermic reaction you get when you mix rekindled concerns about the eurozone crisis with "no pulse" levels of implied volatility. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
An attractive twofer
Appearing on CNBC today, financial-sector analyst Meredith Whitney was very bullish on Dow component Bank of America (NYSE: BAC ) , stating:
Bank of America was already one of the most undervalued names going into the stress tests. What's amazing about this is very rarely do these banks have value and momentum, and this has both of those. The stress test was a huge catalyst for this name. It has been this huge stealth deliverer. They announced cost-cutting measures in 2010. No bank has taken the kind of [cost-cutting] measures it has taken. And it takes two years to implement those. It can easily go to $15. And over the next two years, into the $20s. It's all cost-cutting, it's all operating leverage. I don't have a lot of growth expectations for the big banks in general.
Does Bank of America exhibit value and momentum and, if so, what might it mean for the shares going forward?
The second attribute, momentum, is easy to demonstrate. Whether it be over five days, one month, three months, six months or a year, B of A is beating the S&P 500. Furthermore, although I'm no technician, I'm told that the shares' 14-day relative strength of 82.9 indicates strong momentum. Finally, the share price is above its 50-, 100- and 200-day moving average. Momentum? Check.
As far as "value" goes, shares that trade at a near 40% discount to their book value must surely qualify (mind you, the discount to tangible book value -- 4% -- is much smaller). The forward price-to-earnings multiple of 12.5 is also below that of the broad market. Value? Check.
What does this mean for investors? The combination of "momentum" and "value" factors has historically produced above-normal returns (link opens a PDF), and while that's a statistical statement, I think there's reason to believe Bank of America will fit that pattern over the next three to five years.
It's critical to understand the fundamental case for Bank of America 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.