Financials, typically banks, make up such a large part of the market, and in fact are my favorite part of the market. I have written many articles explaining the importance of financials and their presence. I have also made several calls when these stocks were not so attractive, and have been right on every one. This battered and bruised sector is still performing better than any other part of the market in recent days, with no signs of a slowdown. Just take a look at the charts:
If we learned anything from March 2009, it is that strong financial stocks can make a very big recovery. Two examples are: General Growth Properties (GGP), which went from $0.46 to $13 (2,726% upside) or iStar Financial Inc. (SFI), which went from $0.75 to $6 (700%). Another stock that I believe will continue to perform is Bank of America. The stock is up over 55% since I recommended it in October. Despite the hasty commentary I recommended this stock yet again in November and since then the stock is up 75%.
Bank of America is a classic example of a solid company whose stock took a nose dive because of widespread panic and uncertainty. If you read the commentary in my articles you can see the panic and fear, this type of fear opens the door for great buy opportunities. My third recommendation came early this year, in January, and since has seen a 46% price increase. This will be my fourth recommendation, and the reason for so many in such a short time is because I feel this stock is a hot buy. To me this stock has been a no-brainer since 2009 when the stock dipped to $3. The current market price is $9.80 with a book value of $20.09. This I believe is the fair price for BAC, and also just so happens to be a 105% upside potential.
On March 8, CEO Brian Moynihan discussed the company with investors and analysts at the Citi Financial Services Conference. At the conference Mr. Moynihan discussed Bank of America's transformation, the earnings potential, strategic priorities, and how the bank is delivering for customers and clients. He recapped the progress of 2011 and set the stage for company performance in 2012:
Bank of America has the best capabilities in the business - the most diverse model, with leadership positions across products, geographies, customers and distribution capabilities. The steps we have taken during the past several quarters have moved us in the direction of greater customer and client focus, less complexity, a stronger risk culture, and more transparency.
Moynihan reviewed the company's financial position, pointing out the progress made toward building capital, including tangible book value and Tier 1 common equity. He also illustrated Bank of America's strength and stability, commitment to shareholders and preparation for upcoming Basel III regulations. Since 2009, deposits have risen $41 billion, long-term debt has declined $151 billion, global excess liquidity has grown $164 billion, and the company's Tier 1 and tangible common equity ratios have become much more favorable:
We ended 2011 with the most capital we have ever had, and we entered 2012 with renewed energy, given our accomplishments on several fronts - rebuilding our capital, increasing reserve coverage, strengthening the balance sheet and shedding non-core assets, all in a planned way.
Mr. Moynihan explained that earnings do not just come from generating revenue, but also from building efficiency and controlling costs. He updated analysts and investors on the progress of New BAC, as well as the company's work to clear legacy issues, which will reduce operating expenses and litigation. Recent legal settlements, loan runoff and the sale of non-core assets are part of this process, which will reduce risk and lower credit costs. The CEO also answered questions from the audience on how the bank plans to stay afloat with the current economic condition and low interest rates. Mr. Moynihan explained the company's top priority must remain a focus on the customer:
No other financial services company has assembled this breadth of capabilities for all our customer groups. We're working to outdistance the competition by being able to serve people at all stages in their lives, how they want to be served, where they want to be served, better than anyone else.
The company passed the most recent stress test on March 14, but was required to continue to build capital. Currently, BAC's forward PEG of 0.8 represents a 65% discount to its Banks Industry average and its forward P/E of 11.4 represents a 37% discount. For fiscal year 2012, analysts estimate that BAC will earn $0.72 and for 2013, analysts estimate that BAC's earnings per share will grow by 56% to $1.12. I feel this company is taking all the right steps in rebuilding their image and financial state. I believe the current trend will continue well into the year and throughout next year. The worst days are behind for this company, therefore I suggest buy BAC before it is too late.