"Generally, the greater the stigma or revulsion, the better the bargain." -- Seth Klarman
$43 billion in lawsuits has left Bank of America (NYSE:BAC) drenched in stigma, but as Klarman suggests, the greater the stigma, the greater the possible opportunity.
With that in mind, Bank of America CEO Brian Moynihan recently spoke at a conference and gave four key ingredients for Bank of America to have continued success in 2014. Today, I'll be digging into those ingredients while comparing them to in-class competition Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) to determine if now is the perfect time to buy Bank of America.
The big difference
With over $2.1 trillion in assets, Bank of America is the second largest bank in the United States, and being big provides big competitive advantage. That means, as CEO Brian Moynihan suggested, a "leadership position across the consumer business and one of the broadest distribution networks in banking."
Bank of America, also, is never far from the public eye, because with over $1.3 billion in marketing spend -- which is matched by Citigroup, and double Wells Fargo -- you're never far from a commercial, a building, or even a stadium with the company's logo. That's power only size can buy, and the edge Bank of America will need to leverage to have continued success in 2014.
An improvement in efficiency ratios often translates into an improvement in profitability. So, glass half full, Bank of America certainly has the most room for improvement moving into 2014.
The company has taken significant strides in 2013. This includes cutting more than $600 million in jobs and decreasing long-term debt by more than $30 billion. These are both trends investors should expect to continue into 2014 and will, in this investor's opinion, improve the company's profitability in the process.
Investing in technology
In the past few years, Bank of America has invested more than $750 million in enhancing its digital presence -- and it shows. The company recently received the "Best in Class" mobile banking award from Javelin Strategy and Research, while Wells Fargo won the "Best in Text" banking award, and Citigroup was a top five winner in "Mobile Functionality."
It seems clear, at least to this investor, that CEO Brian Moynihan understands the direction of the industry, stating, "Banking center transactions have declined 11% while ATM, online, and mobile transactions have grown 5%." This is another trend investors should expect to continue, considering Bank of America's mobile app has 14 million active customers, and is adding, to Moynihan's estimates, nearly 7,000 new users daily.
While that's still only a small percentage of the company's 49 million customers, the growing online user base gives Bank of America the opportunity to continue to reduce the physical banking center presence, while allowing employees more time to serve customers better. Investing in technology should prove incrementally beneficial for Bank of America into 2014 and beyond.
Increasing deposits -- especially in a low loan growth environment -- is about developing relationships. This is because when customers are happy, they do things like get credit cards, take out loans, and eventually, invest with one of Bank of America's wealth management companies -- like U.S. Trust or Merrill Lynch.
It's called cross-selling, and it's by no means a new strategy, but it's one Bank of America has been steadily improving. In fact, according to Moynihan, referrals to the company's wealth management businesses are up 70% year to date. The process is good for customer satisfaction and dramatically increases customer retention rates -- it's what we like to call a win-win.
As Klarman said at the beginning of this article, "Generally, the greater the stigma or revulsion, the better the bargain" -- "generally," meaning, don't pick stocks because there's stigma; rather, look for strong companies that happen to be surrounded by stigma.
Bank of America is a strong company that will attack 2014 with size, diligent cost cutting, technology, and stronger customer relationships. Bank of America, in this investor's opinion, is a steal selling at just 0.7 times book value, which is on par with Citigroup, and a better buy than Wells Fargo.
Dave Koppenheffer has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and 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.