A recent article on CNBC details 5 reasons why investors might want to buy Citigroup (C) shares now and also makes a case against buying Bank of America (BAC) shares over Citigroup. The article states "Analysts have been cutting their earnings and revenue estimates for the largest U.S. banks, projecting sharp declines in third-quarter trading and capital markets revenue, along with lower fee income as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. But Citigroup is a much less risky play than the similarly valued Bank of America, which is facing an uncertain ride through the remaining mortgage mess."
While I agree with many points in the article, there are a few reasons why many investors still see value in BofA, especially on any pullbacks from already low levels. While Citigroup does have growth potential from emerging markets and has less exposure to the mortgage problems facing many banks, BofA has some compensating factors that investors should consider. BofA has a very strong retail deposit base, the backing of Warren Buffet as an investor, and owns Merrill Lynch which is a very valuable asset. Also the high exposure to mortgage losses are exactly what could turn into a plus, if real estate turns around. For example, since BofA is taking on much higher losses on mortgages compared to some other banks, that is exactly why it has the most potential to rebound along with real estate. In the end, it makes sense to view BofA as a levered play on the U.S. economy. When the economy turns BofA will turn as well and probably more than any other major bank. I have to agree that Citigroup looks like a lower risk investment but for investors that can tolerate higher risk, Bank of America could also provide more rewards. Both banks are due to report earnings soon and any disappointments could provide an opportunity to buy at lower prices. Here is a closer look at both banks and JP Morgan (JPM) which is considered by many to be one of the lowest risk bank stocks:
Bank of America has been hard hit by a near perfect storm of events including new regulations, lawsuits, a difficult acquisition of mortgage lender Countrywide, and more. However, BofA has been making tough choices and has taken steps for a turnaround including raising capital, and announcing new fees to boost profits.
Here are some key points for BAC:
- Current share price: $6.19
- The 52 week range is $5.13 to $15.31
- Earnings estimates for 2011: loss of 27 cents per share
- Earnings estimates for 2012: profit of $1.44 per share
- Annual dividend: 4 cents per share which yields .6%
Citigroup, Inc. is a banking and financial services giant. Almost every financial stock has been in declining and Citigroup is no different. With so many negative headlines against banks, it might pay to watch this stock for signs of a bottom before buying. Citigroup has exposure to high potential growth areas such as emerging market countries and it has less liability with mortgage issues in comparison to other banks.
Here are some key points for C:
- Current share price: $28.40
- The 52 week range is $21.40 to $51.50
- Earnings estimates for 2011: $3.81 per share
- Earnings estimates for 2012: $4.70 per share
- Annual dividend: 4 cents per share which yields .2%
JP Morgan Chase is one of the best managed and largest banks in the United States. With JPM trading at 8 times 2012 earnings and below book value, this bank stock might be the lowest risk way to play a rebound in financials. It also offers a better dividend than many other banks.
Here are some key points for JPM:
- Current share price: $31.89
- The 52 week range is $27.85 to $48.36
- Earnings estimates for 2011: $4.63 per share
- Earnings estimates for 2012: $5.23 per share
- Annual dividend: $1 per share which yields 3.1%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.