Bank of America (NYSE:BAC) has had a solid run up since my initial suggestion to consider buying it (read this) back in late December. I also included Citigroup (NYSE:C), which has also done very nicely.
I am still bullish on these two financial stocks, and believe they will continue to lead the way for a stronger overall economic recovery.
My focus here is on BAC;
When first suggested, it was trading around $5.20/share, and has hit $7.45/share as of 2/2/2012. A "pat on the back" return of about 40% in a short period of time.
Technically it has passed some resistance prices, yesterday being the most recent. More importantly there has been some considerable change for the better in the balance sheet of BAC.
It reported profits in the last earnings report, and divested itself from areas that I believe will be beneficial to BAC not just in the long run, but also in the near term (read this), which obviously added to its bottom line as well.
Not all "one-time items" have long-term effects, but in this case, selling the stake in China Constuction Bank, and exchanging preferred offerings into common shares strengthens BAC's cash position to enable it to tackle the lousy mortgage portfolio (which has been shrinking) it mainly inherited from Countrywide.
As these toxic assets ( or debts) continue to get cleared from the balance sheet, it becomes a healthier bank.
As Moynihan, the CEO and President stated;
"We enter 2012 stronger and more efficient after two years of simplifying and streamlining our company."
That's good enough for me to believe that BAC continues in in the right direction and its stock will continue its upward march toward its current book value of nearly $21.00/share.
I also believe that any resulting mortgage servicing "deals" reached (read this) will have a positive impact going forward, even if there is some short-term pain. It obviously will clear even more of the lousy mortgages off the books or at least refine them into more acceptable assets.
BAC continues to make strong profits on its other businesses outside of mortgages, most notably its credit card division, and as the mortgage lending business gets better, it will be hitting on more cylinders in my view.
While we could see profit taking from here, I believe that BAC is a strong risk/reward play for the next 12-18 months. I am not betting the farm of course, but i am betting a few head of cattle!
I like taking a risk outside of my core portfolio, and BAC was the one I chose back on 12/21/2011.
I think it can double from here.
Disclosure: I am long BAC.
Disclaimer: Please do your own research and do not buy or sell any security based on opinions expressed here. Your personal investment needs and goals, as well as risk tolerance should always be evaluated beforehand.