As investors begin to digest the comments of Federal Reserve Chairman, Ben Bernanke in terms of both short term interest rates and the extension of Operation Twist, I've begun to examine three of the major banks here in the US. Though investors should remain cautious on the financial sector as whole, these three banks have good upside potential for the remainder of the year.
Bank of America (BAC) - BAC which trades in a 52-week range of $4.92 (52-week low) and $11.25 (52-week high), was trading around $8.10/share at the midpoint of trading on Wednesday. Shares have surged nearly 10% over the last five trading sessions on the news that BAC is planning to sell its overseas wealth management unit. The unit, which is expected to be acquired by Julius Bear, will sell for between $1.5 - $2.0 billion dollars. As has been case with many other large banks selling off assets, BAC's intentions are to free up some much needed capital as we begin to enter the second half of the year. That being said, Bank of America looks very attractive at these levels considering it has been up nearly 35% year to date.
Analysts are expecting BAC to earn $0.17/share on revenue of $23.20 billion dollars for the June 2012 quarter, and considering the last four quarters have been a bit shaky at best, investors should still remain cautious as the Eurozone crisis abroad, and the fragility of the US housing market could weigh heavily on the company. For those looking to establish a position in the company, I'd begin with a small one and gradually add to that position as earnings announcements and dividend dates approach. If BAC can surpass estimates on both the EPS and revenues sides, we could begin to see the stock sustain trading at levels between $10/share and $12/share, which would represent a premium of about 23% to current trading levels.
Citigroup (C) - C which trades in a 52-week range of $21.40 (52-week low) and $43.06 (52-week high), was trading around $29.00/share at the midpoint of trading on Wednesday. Shares have surged nearly 4.5% over the last five trading sessions, and shares were up today on the news that C is buying 7.8 million shares of HCP Inc. (HCP). HCP is planning to use the money to pay off debt and fulfill various other needs it may have. That being said, Citigroup looks very affordable at these levels considering it trades at P/E ratio of 8.07 and has been up nearly 10% year to date.
Analysts are expecting C to earn $0.96/share on revenue of $20.03 billion dollars for the June 2012 quarter, and considering that even though three of the last four quarters have been descent, investors should still remain cautious as the US hasn't fully recovered from both the housing and mortgage fallouts over the last few years. For those looking to establish a position in the company, I'd begin with a small one and gradually add to that position as earnings announcements and dividend dates approach. If BAC can surpass estimates on both the EPS and revenues sides, we could begin to see the stock sustain trading at levels between $31.50/share and $33/share, which would represent a premium of about 12% to current trading levels.
JPMorgan Chase (JPM) - JPM which trades in a 52-week range of $27.85 (52-week low) and $46.49 (52-week high), was trading around $36.65/share at the midpoint of trading on Wednesday. Shares have surged nearly 6.7% over the last five trading sessions, and shares were up today on the news that strong than expected financial markets have allowed the bank to sell off almost 70% of the position that was once acquired by Bruno Iksil. That being said, JP Morgan looks very affordable at these levels considering it trades at P/E ratio of 8.15 and has been up nearly 9.4% year to date. If JPM can surpass estimates on both the EPS and revenues sides, we could begin to see the stock sustain trading at levels between $37.50/share and $40/share, which would represent a premium of about 9% to current trading levels.
Analysts are expecting JPM to earn $0.86/share on revenue of $22.57 billion dollars for the June 2012 quarter, and considering the fact that the bank has surpassed street estimates in three of the last four quarters, investors should still remain cautious until the derivatives trading scandal that rocked the bank gets completely sorted out with the proper precautionary tools in place to avoid the possibility of another instance. For those looking to establish a position in the company, I'd begin with a medium one and gradually add to that position as earnings announcements and dividend dates approach.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
