Bank Of America: When Everyone Says 'Buy'

| About: Bank of (BAC)

Legend has it when the 1906 San Francisco earthquake struck, the founder of what became Bank of America (NYSE: BAC) saved bank deposits from the collapsing building and fires. Amadeo Giannini was back lending again in a few days while the other banks smoldered in ruins.

An earthquake hit the world banking system with the financial crisis of 2008, striking Bank of America particularly hard. Who scrambled out of the wreckage first this time?

One of the Big Four banks in the U.S., Bank of America, held 12% of all U.S. bank deposits in 2009. The other three are Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC),its largest competitors. (Forbes)

The bank fell hard during the 2008 crash due to housing difficulties. Since then Wells Fargo and US Bancorp (NYSE: USB), with much greater exposure to housing, have rebounded faster. Mortgage fees and business account for 26% of Wells Fargo's business while bringing in nearly 20% of US Bank's loans. Compare that to just 7% at Bank of America.

Bank of America's fundamentals make it look stronger than competing banks, but investors still don't believe it. (The Motley Fool)

Making its way out of the 2008 rubble

Along with its main competitors JPMorgan Chase, and Citigroup, Bank of America has been trending steadily higher since July of 2012. In the second quarter 2013 the bank "demolished expectations", reporting earnings per share of $0.32 and revenue of $22.9 billion, profits rocketed 70%. (Seeking Alpha)

But Bank of America price to book ratio sticks at 0.73 with the industry average at 0.94. (CSIMarket)

The trust factor

A lack of trust is why Bank of America trades at a discount, stuck below $15 per share even with reported quarterly earnings showing net income growth of 63%. Investors have heard it all before. Before the financial collapse of 2008, banks had all seemed to have good valuations, good fundamentals, and good assets, until it turned out they didn't.

Bank of America may have a better portfolio and more upside than any bank stock, but does it deserve our trust? (The Motley Fool) That's what investors seem to be asking themselves.

Doing what it needs to do

Bank of America got back to fundamentals, hunkered down, and cut expenses 6%, losing about 18,000 jobs. That's what it takes to succeed in a fiercely competitive world. That's what businesses must do to stay afloat, but it may not be enough. Revenue remains flat:

*Revenues were $150 billion in 2009

*they're closer to $90 billion in 2013

*with no real reason to go up

The real tale behind the bank's resurgence is cost cutting and efficiency pumping up profits in the face of stagnant revenues. (Slant) That's just doing business the way you're supposed to, but without any major good news on the horizon it a harbinger for no great growth.

And Bank of America's still reeling from 2008:

*The division overseeing the legacy "assets"( toxic mortgages from 2008) recorded a pre-tax loss of $30.6 billion in 2011--even the $11.4 billion loss last year drags earnings.

*They await a New York judge's approval of an $8.5 billion settlement dating back to the 2008 crisis. (Daily Finance)

If this judge in New York doesn't accept the bank's settlement offer, Bank of America could be on the hook for a much bigger liability - and that "could drag out the process for years" says Betsy Graseck of Morgan Stanley (NYSE: MS).

Wait for the ruling

Any new money looking to get into Bank of America now should look first:

*Year-over-year sales growth is projected to be more or less flat.

*The earnings estimate picture isn't favorable, either in the short- or long-term.

*Zacks ranks it a hold, meaning there are better stocks to pick from.

The stock price already reflects the resurgence in housing. Until Justice Barbara Kapnick in State Supreme Court in Manhattan makes her ruling, you won't really know how well Bank of America's survived the Earthquake of 2008.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.