Bear Stearns Looking Decidedly Cheap

On Friday, I noted that Bear Stearns was trading below its book value ($84.09 per share), and said that the "next milestone to fall" would take place if the share price dropped past $73.41, where the bank has a market capitalization of $10 billion.

Well, guess what - it's done that today. The shares are now at $72.47, down 5% on the day despite opening strongly on news of a new CEO.

At just 86% of book value, Bear's now looking decidedly cheap - which doesn't mean, of course, that it can't fall much further. Just take a look at Countrywide, down 20% today to $6.06, which puts it on a price-to-book ratio of just 0.29.

Part of the problem might well be that Cayne will continue on as chairman, and therefore be able to block any takeover attempt. Maybe he should resign from that job, too.

Comments

[shortpaulso...:]

You must be a jerk recommending a stock facing a mutitude of civil and criminal lawsuits, as well as more than $20 billion of Level3 assets that they don't put a price on. Are you long the stock and looking to get out? Maybe your a schill for the firm as insiders look for any buyers to take them out before this goes belly up?

2008 Jan 08 05:55 PM

[VP of Commo...:]

Nope, the most logical explanation is that Felix is high.

2008 Jan 08 09:33 PM

[helplessobs...:]

The way you look at BSC shows you don't know much about business. Sure in all the investment books you have read things like book value etc. are important, but only when you have customers for your products/services. BSC doesn't have customers any more, only legal advesaries who's goal is to destroy BSC like BSC has destroyed them. Think of it man, are you going to go back to a store that has ripped you off, bend over and say do it again?

2008 Jan 08 09:33 PM

[Jay:]

P/B is problematic when the book value of assets is subject to further writedowns. That being said, I agree with Felix, there's good value at some point, probably not too far from where we're at now.

Further, to those posting above, proper grammar would help the rest of us understand your argument(s) - i.e. difference between your/you're, who's/whose. I recommend Strunk & White.

2008 Jan 08 11:54 PM

[Pj568:]

When BSC is less than book it does make you wonder whether its future reserve losses, decreases in future earnings power or anticipated dilution events that lie behind the market sentiment.

For CFC you have to wonder when, not if, a FDIC takeover will occur. They seem to be borrowed to the max and paying premium rates for deposits. CFC and WM (the adjustable rate mortgage kings) both have all those B's of individual mortgages held in portfolio that get written down based on delinquencies instead of marked to market like CDO debt securities. So they should incur increasing reserve losses and decreasing revenue recognition as the year progresses.

2008 Jan 09 12:38 AM

[JJ Hornblass:]

PE is still over 45. That's still quite high, especially considering the weaknesses in one of its core businesses: mortgage finance.

2008 Jan 09 09:13 AM

[vodka_tonic:]

i agree with you, BSC at 70 is looking good. the bank still has tons of assets and lots of loyal customers. a couple of hedge funds does not a mountain make. it could go lower, but i bought some at 72 and intend to hold it :)

2008 Jan 09 12:22 PM

[jonreagan:]

Regardless of whether or not the comments above contain proper grammar, let's focus on their meaning, which is a lot more important. No legitimate financial/market analyst would recommend Bear Stearns right now, period. There are more write-downs to come, which will take this lousy company and its stock down further.

Markets are irrational, reacting negatively on rumors and false information, which creates opportunities for gaming and rigging by unscrupulous people. Worse yet, they over-react to information which, though true, is fairly insignificant, e.g., W's musing on the Iran incident involving one of our naval ships.

Against this backdrop, writers shouldn't make stupid recommendations, like suggesting that investors should consider buying garbage stocks such as Bear Stearns.

2008 Jan 09 12:25 PM

[dancing diva:]

You'd be right if that was actually BSC's book value. But how in the heck can you determine that?

That argument was also made with the homebuilders several months ago. Look how well that worked.

2008 Jan 09 09:45 PM