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If You Hate Bank of America, Then Buy Its Stock!

John Maxfield
August 18, 2013

Source: Wikimedia Commons.

If Bank of America (NYSE: BAC) were a senior in high school, it wouldn't be selected as the most popular member of its graduating class. The most despised member, perhaps, though I don't recall seeing that designation as being officially sanctioned by the yearbook staff.

But for an investor, reputational damage like this offers a glaring opportunity. If your goal is to buy low and sell high, then you have to buck the crowd. "When 'conditions' are good, the forward-looking investor buys," notes Fred Schwed in his timeless classic Where Are the Customers' Yachts? "But when 'conditions' are good, stocks are high."

Take Wells Fargo (NYSE: WFC) and US Bancorp (NYSE: USB) as examples. These are two of the best-run banks in the country. Everybody knows this. And as a result, they trade for a pretty penny. Wells Fargo's stock sells for 1.9 times tangible book value, while US Bancorp's goes for a staggering 2.9 times tangible book.

Can these valuations head higher? Sure, but absent some type of irrational bubble, it's hard to envision that either of them would double. There's simply a limit to how much investors will pay for even the best banks.