1 Stock to Buy in 2014 and Hold for 20 Years

Across the board, stocks have rallied from their 2009 lows. Corporate profits have expanded significantly, but so have market valuations. However, the financial sector remains relatively "cheaper" than other industries as many investors are still hesitant to jump back into the asset class that crumbled the most during the market downturn.

To find the best opportunities in the financial sector, we asked our top financial writers to tell us the one stock they feel comfortable enough to buy today and happily hold for the next 20 years.

Patrick Morris: It may not make me popular, but my vote would be Bank of America (NYSE: BAC  ) . There is no denying that Bank of America has faced a rather tumultuous time both during the financial crisis and the years that followed. There is no denying it has left the American public -- and its shareholders -- with a justified sense of frustration and anger.

Yet when you take a step back, you'll see that Bank of America in 2014 is still down more than 60% from where it stood in in January 2007. By comparison, peers JPMorgan Chase and Wells Fargo are up 35% and 50%, respectively. While I understand those three banks have had mighty different outlooks emerging from the crisis, the fact that Bank of America is still well below where it once stood cannot be discounted.

Speaking of discounts, Bank of America also remains cheap, trading at a 1.25 price to tangible book value ratio, versus 1.5 for JPMorgan and dramatically lower than the 2.0 multiple held by Wells Fargo. On sheer valuation alone, it appears to be an attractive consideration.

Bank of America seems to be turning the corner, and the reality remains it is the largest bank in the U.S. by deposits in its consumer operations. It also has both massive and expanding business and investment banking services, wealth management, and others.

Considering that it provides value relative to its peers, a commanding market presence, and growth opportunities in its businesses, Bank of America is one stock that should absolutely be considered to hold onto for the next 20 years.

John Maxfield: The easy money in bank stocks is long gone. At the end of 2011, you could have blindly thrown darts at a dartboard and come up with attractive investment options in the industry. Since then, however, shares of the nation's largest lenders have soared on the back of an improving economy and lower loan losses. To name only the most prominent, Bank of America has more than tripled in value, while JPMorgan Chase and Citigroup are both up by a factor of two.

As I see it, this leaves the astute investor with only two options. First, they can avoid the sector altogether -- which, quite frankly, wouldn't be an imprudent move given the self-interested mismanagement that prevails at the top of most big banks. Or second, you could limit yourself to the institutions that have proven themselves through multiple cycles to be truly superior to their competitors.

Assuming you choose the latter course, it's my opinion that there are only four banks that should even be considered as additions to an investor's portfolio: New York Community Bancorp, M&T Bank, U.S. Bancorp, and Wells Fargo. That's it. Investing in any big bank beyond these is the figurative equivalence of picking up dimes in front of a steamroller -- that is to say, the risk of future downside is demonstrably larger than any potential return.

Of these, my favorite is U.S. Bancorp. Unlike New York Community Bancorp, which is a truly outstanding organization, it isn't on the verge of becoming a systematically important financial institution, which will likely entail a cut to the New York City-based bank's generous payout ratio. Unlike M&T Bank, it isn't in the midst of a transformative acquisition (M&T is still awaiting regulatory approval of its Hudson City Bancorp deal). And unlike Wells Fargo, U.S. Bancorp remains under the "reputational" radar, if you will, of most consumers.

Alexander MacLennan: Among the big banks, it's tough to find one as beaten-down as Citigroup. Since mid-2007, shares are down around 90% following painful dilution, and the dividend has been slashed to just one penny per quarter -- an insulting yield for income investors.

But with all of this pain comes an opportunity at a good price. Citigroup is the only one of the four major banks to trade at a discount to tangible book value. The stock is even cheap based on forward earnings barely managing to trade above ten times, and this seems especially cheap when we factor in Citigroup's global footprint and top positions in many emerging markets.

While I see Citigroup as a long-term value, I also see potential catalysts in 2014 and beyond. As Citigroup regains its strength, it can buy back more of its stock below tangible book value (if it's still trading at such a discount). I also expect Citigroup to raise its dividend in the near future, attracting a larger group of income investors not exactly enticed by the current 0.07% annual yield.

Jessica Alling: American International Group (NYSE: AIG  )  should be on your buy list in 2014. Not only has the company finally resolved the last piece of its divestiture puzzle with the sale of ILFC to AerCap, but the insurer is leaps and bounds from where it was in 2009.

With smart investments in China, where the developing middle class is now looking for insurance and retirement products, AIG has positioned itself well for growth opportunities abroad.

Closer to home, the company and other private mortgage insurers are going gangbusters, even as the housing market slows during the winter season. With the Federal Housing Administration taking a step back from the mortgage guarantee market, these private insurers have a chance to gobble up huge segments of new mortgages as the economy recovers and buyers continue to enter the housing market.

For value investors in particular, the megainsurer is really attractive based on its price, which is still 22% below book value.

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Read/Post Comments (24) | Recommend This Article (57)

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 January 11, 2014, at 7:43 PM, johnestromjr wrote:

    Bank of America is a PREDATOR bank. Never do business with them. If you do, be very wary.

  • Report this Comment On January 11, 2014, at 9:21 PM, DavidJones wrote:

    Citigroup up by a factor of 2? Nonsense. There was a 10:1 reverse stock split in 2011 that turned 10 $4 shares into 1 $40 share. @ x growth would mean 1 share should be $80.It's not its $55. And these folks are supposed to be pros?

    Wells Fargo is also a Predator bank

  • Report this Comment On January 11, 2014, at 10:18 PM, hiddenflem wrote:

    Don't tell me that the culture of these banks has changed one iota from the time that they got our country into trouble. B of A, really? We can do better.

  • Report this Comment On January 11, 2014, at 11:57 PM, JohnMaxfield37 wrote:

    <<Citigroup up by a factor of 2? Nonsense. There was a 10:1 reverse stock split in 2011 that turned 10 $4 shares into 1 $40 share.>>

    Citigroup's reverse stock split was in May of 2011. The article above refers to its share price performance since the "end of 2011."

  • Report this Comment On January 12, 2014, at 12:02 AM, TMFKopp wrote:

    @DavidJones

    In the article, John wrote: "At the end of 2011". In late November / early December, Citi's shares traded in the low $20's. The stock ended 2011 at just above $26.

    So yeah, Citi's shares have doubled.

    Matt

  • Report this Comment On January 12, 2014, at 1:35 AM, glenns45 wrote:

    Organized crime syndicate sanctioned by our corrupt new world order Politicians.

  • Report this Comment On January 12, 2014, at 11:28 AM, FreakyFrank wrote:

    I agree that banking stocks will do well over the next few years. However, public sentiment against BOA is very strong, and will be hard to overcome, imho.

    Last year, I moved my entire IRA into Lloyds of London(LYG), and it is up 21.3% in less than six months. And I hope to get some nice dividends sometime this year.

  • Report this Comment On January 12, 2014, at 1:35 PM, banmate7 wrote:

    I find negative sentiment against the banks a bunch wasteful. Not to mention ill placed. Especially in the context of investing.

    I'm a long time BAC investor. I had to average from $53 a share to a current $18 a share average price. I'm nearly break even after languishing since 2006. At least I'll make money in the coming years on BAC. Lesson learned, as I normally stick with value investing, BAC being one of the exceptions.

    Again, the hate towards banks is misplaced. Predatory? Please. Yes, commercial & investment banks conspired to abuse debt. Worst of all, they created & traded high risk derivatives on even more leverage, overrating them intentionally. I get that.

    But main street is just as much to blame. Who borrowed the money? Moreover, household debt soared across the socioeconomic spectrum. It wasn't just sub-prime mortgages, but also massive middle class housing leverage that led to the crash of 2008.

    Cheap money printing, diminishing lending standards, & reckless borrowing all created this perfect financial storm. We did it together: government, wall street, & main street. Hence, I find the class warfare rhetoric against bankers and the 1% hypocritical.

    Never mind that an investor like me still prospered through events like 1999 & 2008. Value investing has always stood me in good stead. On the whole, it's helped my portfolio beat the S&P500 handily, absorbing bad performance in stocks like BAC.

    Regardless, banks are here to stay & will do well. I think they've relearned some hard lessons on risk. Try getting a mortgage these days. Going forwards, many are a decent investment.

  • Report this Comment On January 12, 2014, at 9:54 PM, toomuchgas wrote:

    I held BAC for a long time and eventually dumped it. It still hasn't returned to my selling price. I'm long some of the smaller regional banks. Since the federal government is using the big money center banks as a source of funding I would rather avoid them until a more reasonable administration comes into office.

  • Report this Comment On January 13, 2014, at 7:35 AM, madmilker wrote:

    It doesn't look like but one person read what Thomas D. Schauf wrote about the Federal Reserve (private bank) years ago.

    This O'fart will just leave it at that...

    I ain't even gonna say a word about Wal*Mart.

  • Report this Comment On January 13, 2014, at 6:05 PM, bfsteck wrote:

    What is the sentiment on Wells Fargo ?

  • Report this Comment On January 13, 2014, at 8:43 PM, primeco3313 wrote:

    Are you kidding me I would never recommend Bank of America, They way they could care less about people who are struggling. Put your money where you will make money (tech,example DDD) not here!!!

  • Report this Comment On January 13, 2014, at 11:06 PM, anne1730 wrote:

    WE all are to be blamed !!!!What happened to

    all burocrats & Fed RES. whoare dining & wining

    & supposed to be watching those Banks ??

    Did any one go to Jail ?? IF i did that i would loose

    my license & be in Jail. MTA

  • Report this Comment On January 15, 2014, at 8:47 AM, jharmon64 wrote:

    Someone posted above they moved their entire IRA to one investment.

    That person should not be allowed to comment on investing practices.

    As to BOA, people have short memories and pretty much all banks are out to make a profit.

    I wouldn't call them predators.

  • Report this Comment On January 17, 2014, at 3:07 PM, divybuy wrote:

    Predators they are, and will never get my investment dollars. Any bank for that fact except maybe Wells Fargo.

  • Report this Comment On January 17, 2014, at 3:20 PM, Rugrat54 wrote:

    For years I've had a well balanced portfolio. And then last year I owed 2000 shares of Facebook when it announced their Q2 results and the stock went up 10 points in a day. After a month or so I decided to go with it because I believed they would have another good quarter so I put everything I own into the stock. Let me add that today I have sold off about half of the stock I owned and returned to a balanced portfolio with that portion. But in the last half of 2013 I made over $142,000, approximately a 58% return, by being totally in Facebook. I may do it again if I see things going their way again. Call me and the other guy stupid but how many times do you wish you had been there for a jump like that!

    Freaky Frank you're not the only one with the all in one idea!

  • Report this Comment On January 17, 2014, at 4:56 PM, whyaduck1128 wrote:

    AIG? Citigroup? Bank of America?

    Wow, for an organization that loudly trumpets how it won't support companies with even the appearance of unethical conduct, this is simply amazing.

    I cannot see how The Fool can be so self-righteous about other companies, yet ignore the sociopathic culture within these companies and the actions they take in their obvious robber baron desire to make more money at any social cost.

  • Report this Comment On January 17, 2014, at 6:50 PM, usfarbuo wrote:

    AIG:

    As far as I am concerned they should be out of business except for the fact that WE ( the American taxpayers) bailed them out courtesy of OUR government. I had AIG stock when it was 100.00 a share and then went bankrupt and my shares now total 10 from what was a 20,000.00 net worth of AIG stock. I have enough taxx losses just from AIG to last me until I die-too bad I could not leave the rest of the tax losses to my heirs so they could at least get something from this worthless company and also get something back from our estemmed government from their bailouts. AIG is a shell of a stock.

  • Report this Comment On January 18, 2014, at 5:30 AM, seetapuna wrote:

    got wiped out from AIG, got in BAC at $ 1 something, almost even

  • Report this Comment On January 18, 2014, at 8:57 AM, ScottAtlanta wrote:

    Billions in Fines = Predatory

    I have my own predation story with BAC but I won't detail it here. Suffice it to say....I was maimed and left alive only so they can continue to profit from me.

    So yeah....it'll continue to profit as long as it continues to exist and exploit people.

  • Report this Comment On January 18, 2014, at 10:12 AM, PhiranaRon wrote:

    I bought BAC at $4.01. Roll on baby!!!!

  • Report this Comment On January 18, 2014, at 11:30 AM, FredBrown wrote:

    Unfortunately big banks are a necessary evil. If you need a Bank, use your Independent Community Bank. The big banks were encouraged in the mortgage fiasco by the one and only Federal government that needed someone to help bail out Freddie and Fannie. Lastly, one can only be "had" if they allow themselves to be "had". It takes two to tango. With that in mind, we all are subject to making bad decisions.

  • Report this Comment On January 18, 2014, at 11:48 PM, dorkmeyer wrote:

    @FreakyFrank and Rugrat54: Congratulations on the remarkable profits that you realized by investing your entire portfolios into a single position; just promise that you'll be equally eager to publicize your bankruptcies should that strategy ever fail you.

  • Report this Comment On January 19, 2014, at 12:09 AM, adutt1 wrote:

    Excellent analysis, review and conclusions.

    I am long on BAC & C, hoping to make some money some day, may be 3 - 5 yrs from now.

    As a backup I suggest an investor should invest in KRE, will definitely make money during 2014 and beyond. The holdings are what we call mom & pop joints, but these are the once who are lending to small businesses, home building, refinance, and new home mortgage. Think about the big picture of our economy.

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