The following video is part of our "Motley Fool Conversations" series, in which senior analyst Anand Chokkavelu, CFA, discusses topics across the investing world.
Bank of America is probably the riskiest stock of the 30 Dow components. But as a bull on Bank of America for those who can understand and tolerate the risks, Anand explains three reasons he's optimistic:
- Core earnings power and cost savings from Project New BAC can allow Bank of America to gradually increase capital levels to comply with Basel III standards without excessive dilution.
- Historically low price-to-tangible book value of 0.6 versus a 20-year average of 2.5 means a lot of pessimism is built into this too-big-to-fail bank. And on a relative basis, Bank of America's currently valued lower than peers Citigroup, JPMorgan, and Wells Fargo.
- Eventual dividend raises can be a major signal of strength and a catalyst for its share price.
Watch the video below for all of Anand's thoughts.
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Anand Chokkavelu owns shares of Bank of America, Citigroup, Wells Fargo, and JPMorgan Chase. He also owns long-dated options on Bank of America and warrants on Citigroup, Wells Fargo, and JPMorgan Chase. The Motley Fool owns shares of JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.