Still Buying Bank Of America On Any Dips

Mar. 3.14 | About: Bank of (BAC)

Warren Buffett is on CNBC today being interviewed by Becky Quick. This got me to thinking that I have not published much on one of his holdings, Bank of America (NYSE:BAC) recently. The bank also came to mind several minutes later as I just saw Morgan Stanley reiterated its "Overweight" rating on Bank of America on Friday.

Morgan Stanley has a $21 a share price target on Bank of America. My own price target is $20 a share, which I predicted early in the New Year that it would hit sometime in 2014. I have owned B of A since just over $5 a share in the dark days for the bank in 2011. Despite tripling since then I still own the shares.

In fact, I am adding slightly to my position on any good dip in the market. It appears another one of these may occur on Monday as Russia's aggressive but predictable action in reaction to the situation in the Ukraine has caught the administration and the markets flat footed.

An investor has to like that Bank of America has almost no exposure to emerging markets unlike banking brethren Citigroup (NYSE:C). It also does not seem to be the regulatory piñata JP Morgan (NYSE:JPM) has turned into since its CEO criticized aspects of Dodd-Frank as well as some current economic policies.

The bank is also well positioned to benefit from the continuing recovery in the housing market. Although this market will probably not produce the same robust growth it saw in 2013, housing should still show expansion and recovery in 2014. Bank of America was the only major bank to see healthy growth in mortgage originations in 2013 as well as it is gaining market share.

Another catalyst to Bank of America's value story will most likely occur after the "stress tests" initiated by the Federal Reserve for major banks a little later in the year. Bank of America in all probability will request and receive permission to offer a significant dividend for the first time since the financial crisis. My prediction is that it will be able to offer between a 2% to 3% yield by the end of 2014. Obviously this will be a positive catalyst even if an optimistic prediction.

Bank of America's earnings growth trajectory is robust. After earning 90 cents in FY2013, analysts project the bank will make more than ~$1.30 a share in FY2014 and better than $1.60 a share in FY2015. The stock sells for ~$16.50 a share or around 10x 2015's expected earnings. BAC also has a five year projected PEG of less than 1 (.60).

If today's emerging market triggered pull back brings the stock down to $16 or so; I will be picking up more shares as I believe the best days continue to lie ahead for Bank of America. The stock sold north of $50 a share prior to the crisis and I think shareholders have years ahead of slow and steady gains in this bank stock. ACCUMULATE

Disclosure: I am long BAC. 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.