Is Bank of America a Better Buy Than Apple?

A year ago, Apple (NASDAQ: AAPL  ) was in the midst of a blistering nine-month stretch, cementing itself at the top of the market. Meanwhile, Bank of America (NYSE: BAC  ) stood pat after its less-than-stellar showing in the Fed stress test, while other banks rushed to return capital to shareholders. Apple looked like a stock that couldn't lose, while Bank of America... well, was Bank of America: the stock so many love to hate. But since October, these stocks have switched places. Could the formerly scorned bank now be a better investment than the once-hot tech superstar?

BAC Chart

BAC data by YCharts.

There's no magic metric that can answer this question once and for all. With literally hundreds of data points available for comparison, let's look at a few to see who comes out on top.

Valuation
Based on P/E ratio, Apple wins by a landslide, trading at around 10 times earnings. Bank of America shows its struggles over the past year; its reduced earnings expanded its P/E to almost 50. If we can believe the analysts' and companies' earnings forecasts, the gap between these numbers should narrow going forward, with Apple checking in at 8.6 times earnings and B of A at 9.2.

But price-to-earnings ratios don't tell the whole story, and each balance sheet shows hidden value. Bank of America, the second-largest bank based on total assets, is currently trading at a 46% discount to book value. Apple, on the other hand, has a $137 billion cash hoard that it's reluctant to part with, its year-old dividend notwithstanding. Though I like dividends as much as the next guy, the deep discount of B of A is slightly too enticing at this point, and its annual dividend will surely be more than $0.04 per share before too long.

Management
Bank of America CEO Brian Moynihan wasn't in charge when Bank of America truly descended into madness with its acquisition of Countrywide, but he has done an admirable job extricating the bank from billions in bad loans related to the acquisition. Nevertheless, the bank is still facing billions of dollars in potential liabilities before it is completely out of hot water.

Tim Cook has done a great job as Apple's CEO after taking over for the late Steve Jobs, but his honeymoon period could be coming to an end. Apple hasn't truly released a new product since Jobs' death -- just upgrades -- and the iPad Mini is a device that Jobs probably would have never released. Still, Apple and its products have a devout following, and the company still has little problem selling billions of devices every time it brings something to the market.

Business & risks
Each company is at a different kind of crossroads. At its core, Apple is based on innovation, and it could be just one new (or improved) product away from its lofty heights of last year. As we approach the two-year anniversary of Jobs' death in October, it is hard to say how his ideas may continue to influence the company. The iPad Mini may well have been the first step away from Jobs' stable of products, and there may truly be something new coming. We won't know for sure until it actually appears -- iWatch and iTV chatter notwithstanding.

Bank of America is in the midst of "Project New BAC," trying to clean up its balance sheet and launch a new way of doing business. One surefire way to get going on this new path is to start putting some of its known liabilities behind it so it can focus on some of the unknowns mentioned above. It is currently battling insurer MBIA (NYSE: MBI  ) about some Countrywide mortgages and has been on the losing end in two recent decisions. It could be time to just settle the suit and shift its focus elsewhere.

Is Bank of America the better buy?
Bank of America appears to have most of its major issues behind it, and it's trading at an extreme discount to book value. In my opinion, this makes it the better buy today. That said, I don't think Apple is a bad stock. It simply has more to prove in the short term. I could be wrong to favor Bank of America, but with first-quarter earnings right around the corner, we'll have a good idea of whether it's heading in the right direction.

Want to know more about Bank of America? 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 (1) | Recommend This Article (7)

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 April 07, 2013, at 10:05 PM, alboy5 wrote:

    Really save your money get a 20 buck phone on a 20 dollar plan. Dont waste your money on an ialbatross.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2348726, ~/Articles/ArticleHandler.aspx, 11/25/2014 7:55:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,814.94 -2.96 -0.02%
S&P 500 2,067.03 -2.38 -0.12%
NASD 4,758.25 3.36 0.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/25/2014 4:00 PM
AAPL $117.60 Down -1.03 -0.86%
Apple CAPS Rating: ****
BAC $17.10 Down -0.08 -0.47%
Bank of America CAPS Rating: ****
MBI $10.35 Down -0.01 -0.10%
MBIA, Inc. CAPS Rating: **

Advertisement