Bank of America Corp. (BAC) and New York Community Bancorp Inc. (NYCB) have lower Forward P/E as compared to their peers and have been recently upgraded by analysts. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
Bank of America Corp.
BAC was up 2.85% and closed at $12.26 on March 7, 2013. BAC had an unusually high call volume of 410,497 (vs. the average call volume of 171,060) with a daily volume ratio of 2.40 on Thursday. BAC had been trading in the range of $6.72-$12.42 in the past 52 weeks. BAC has a market cap of $132.14B with a high beta of 2.38.
On March 7, 2013, Edward Jones upgraded BAC from hold to buy. Analysts currently have a mean target price of $12.40 and a median target price of $12.75 for BAC. Analysts, on average, are estimating an EPS of $0.23 with revenue of $23.34B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.00 with revenue of $90.64B, which is 5% higher than 2012. Analysts are projecting 18.70% growth for the next 5 years (per annum), which is higher than the industry average estimate of 8.65%.
On March 7, 2013, BAC also provided results of the 2013 Dodd-Frank Act Annual Stress Test. As quoted from the report,
"The Tier 1 common capital ratio declined from 11.4% at September 30, 2012 under Basel 1 to an estimate in the supervisory severely adverse scenario of 7.7% at its lowest point and 8.0% at December 31, 2014, after including the impact of higher risk-weighted assets from the Market Risk Final Rule. These post-stress capital ratios exceeded the 5% required minimum. The estimated lowest stress ratios for Tier 1 capital, Total capital and Tier 1 leverage were 9.4%, 12.6% and 6.2%, respectively, exceeding the comparable regulatory minimums of 4%, 8% and 3%, respectively."
There are a few positive factors for BAC:
- Lower P/B and P/S of 0.6 and 1.6 (vs. the industry average of 1.0 and 2.2)
- Lower Forward P/E of 9.3 (vs. the S&P 500's average of 13.9)
- BAC at the current price of $12.26 is below its book value of $20.24
- BAC currently offers an annual dividend yield of 0.33%
Technically, the MACD (12, 26, 9) indicator had turned to show a bullish sign in the last trading day. The momentum indicator, RSI (14), is picking up and indicating a strong buying momentum at 63.20. BAC is currently trading above its 50-day MA of $11.63 and 200-day MA of $9.33. The next resistance is $12.98, the R2 pivot point, as seen from the chart below.
How to Invest
With BAC's huge deposit and collection of businesses, BAC enjoys a narrow economic moat. As BAC's fundamentals continue and slowly getting away from billions of dollars in mortgage-related liabilities, BAC still has lots of upside potential as its profitability improves. For bullish investors, a credit put option spread of May 18, 2013, $10/$11 put can be reviewed. Investors can also review the following ETFs to gain exposure to BAC:
- KBW Bank Portfolio (KBWB), 10.44% weighting
- RAFI Fundamental Pure Large Value Portfolio (PXLV), 8.58% weighting
- Financials Sector Fund (RWW), 8.05% weighting
- Dow Jones U.S. Financial Services Index Fund (IYG), 7.90% weighting
- Financial Select Sector SPDR (XLF), 5.85% weighting
New York Community Bancorp, Inc.
NYCB was up 2.33% and closed at $13.62 on March 7, 2013. NYCB had been trading in the range of $11.47-$15.05 in the past 52 weeks. NYCB has a market cap of $6.00B with a low beta of 0.83.
On March 7, 2013, Standpoint Research upgraded NYCB from hold to buy with a price target of $17.00. On the same day, Keefe, Bruyette & Woods also upgraded NYCB from market perform to outperform with a price target of $15.00 (from $13.00). Analysts currently have a mean target price of $13.38 and a median target price of $13.50 for NYCB. Analysts, on average, are projecting an EPS of $0.26 with revenue of $287.63M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.03 with revenue of $1.12B, which is 3.60% less than 2012.
There are a few positive factors for NYCB:
- Higher operating margin of 53.6% and net margin of 34.4% (vs. the industry averages of 46.8% and 5.2%, respectively)
- Stronger ROE of 8.9 (vs. the average of 1.6)
- Lower P/E and P/B of 11.8 and 1.0 (vs. the industry averages of 20.1 and 1.1)
- Lower Forward P/E of 12.0 (vs. the S&P 500's average of 13.9)
- NYCB's book value of $12.88 should support its bottom line
- NYCB currently offers an annual dividend yield of 7.34%
Technically, the MACD (12, 26, 9) indicator is showing a slightly bearish sign. RSI (14) is picking up and indicating a slightly bullish lean at 57.07. NYCB is currently trading above its 50-day MA of $13.22 and 200-day MA of $12.76. The next resistance is $13.85, the R1 pivot point, followed by $14.20, the R2, pivot point, as seen from the chart below.
How to Invest
Despite its small cap size and niche operation, NYCB is a solid bank long-term holding with its strong fundamentals. The current dividend yield of 7.35% is very attractive for income investors. For bullish investors, a credit put option spread of July 20, 2013 $12/$13 can be reviewed. Investors can also review the following ETFs to gain exposure to NYCB:
- S&P Mid-Cap 400 Value ETF (IVOV), 1.11% weighting
- SPDR S&P 400 Mid Cap Value ETF (MDYV), 0.93% weighting
- S&P MidCap 400 Value Index Fund (IJJ), 0.93% weighting
Note: All prices are quoted from the closing of March 7, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NYCB over the next 72 hours.