Bank of America (BAC) is at a relatively attractive position for people interested in long term investments. Investors should follow Bank of America throughout the year in order to determine the best time to invest within this small window of opportunity. The JP Morgan Chase (JPM) trading blunder has brought stock prices in the banking industry down slightly. Due to its damaged reputation with mainstream consumers, Bank of America may experience another dip in stock price, dependent on the impending economic crisis in Europe. Bank of America is not necessarily susceptible to this impending collapse, but the perception is enough to create a more attractive stock price for investors. Bank of America is taking assertive steps in order to regain the prominence it had before the crash. Bank of America is mainly focusing on cutting back on expenditures while mitigating risks and focusing on improving core business functions.
Bank of America has cut high-salaried executive management positions whole closing many branches. The bank is also focused on divesting wealth management acquisitions like Merrill Lynch that helped add more liability than capital. Bank of America is not over-exposed to Greece, so it will not suffer mightily as the country struggles with its new government considerations and looming debt issues. The opportunity to invest in Bank of America is in 2012. After the European crisis has come to fruition, the stock price will began to climb again in 2013. Once mainstream consumers believe in this brand again, Bank of America will be the strongest growth stock in the industry, with the highest upside in comparison to its competitors.
There are a number of factors indicating that Bank of America is not the best short-term investment right now. With a stock price hovering around $7, it's hard to imagine shares being worth less, outside of another financial crisis. The good news is that despite the dreary lack of earnings, revenue and margins from the first quarter, Bank of America did pass the government's stress test. Investors should take comfort in knowing that the bank can at least withstand another financial meltdown and recession that we experienced in 2008 and 2009. The latest $2 billion trading loss by JP Morgan and the ongoing economic crisis does have the power to reduce the stock price of Bank of America to $5 indirectly. This creates the optimum market for the aggressive investor. The 52 week range has been between $5 and $12, with the beta hovering around 2. The 50 day moving average is above $8, and the 200 day moving average is above $7, so investing in these shares now is ideal in terms of a long-term investment. The projected price-to earnings ratio looking forward is above 6, while the projected growth rate for 2012 is over 300% and over 70% for 2013.
Bank of America is not doing as well as Wells Fargo (WFC) or Citigroup (C) right now, but it has enough good will still attached to its name to make it a competitor or leader in the industry once again. Revamping and tightening down on its business model has helped refurbish the image since the financial crash. Shareholders appreciate the sensible and conservative direction the bank is now taking. Putting the CEO on a performance-based restricted stock compensation package is one of the most noticeable changes that indicate the bank is serious about moving in the right direction. Cutting ties with the less profitable and non-essential assets and business operations it has taken on in the last few years is also pivotal in repairing Bank of America's image. Selling the wealth management assets to international bidders will repair the Bank's image, along with adding some much needed revenue in the billions. The most viable market for the Merrill Lynch and Countrywide Financial assets seems to be with Asia and other bidders in the European markets. Reducing the debt on the balance sheet will go a long ways to improve Bank of America's margins by the end of the year.
Bank of America seems to be following the same path as Wells Fargo in terms of mitigating risk in its activities outside the core banking business. This is essential in strengthening its position for growth throughout the rest of the year. In light of the latest JP Morgan potential scandal, Bank of America is the third best option on the market for investors besides Wells Fargo and JP Morgan. In the long-term, Bank of America has the potential to eventually surpass both of these banks as the preferred banking institution in the United States once again. Reducing its exposure in the mortgage origination and lending market will also help reduce potential future risk, while creating more cash flow for growth now in its core business functions. The most important things to remember about Bank of America is that it passed the stress test while continually focusing on improving its balance sheet and ratios, and it also has less than $500 million exposed to the Greek collapse that may soon come to fruition. Bank of America is reducing its exposure in the European markets each year. After taking into account credit fault protection, Bank of America had a net $10.5 billion exposed in Greece, Italy, Ireland, Portugal and Spain in 2011, reduced from $12.4 billion in 2010.
The stock price will most likely take a few dips this year, but this is the opportunity assertive investors are waiting for. Bank of America, Morgan Stanley (MS) and Wells Fargo are possibly due for a downgrade in June from Moody's Investor Service. Even acting now is advisable, as shares are below the average price. This is the ultimate long-term investment. It will take close to decade for Bank of America to reach its prominence as the leader in the industry, according to the markets and in the eyes of mainstream America. Regaining this position is plausible and reasonable, as long as Bank of America stays conservative and avoids the risky operations that left it overexposed in liabilities before the financial crash.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.