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Good Article On BAC- Gurufocus

|Includes:Bank of America Corporation (BAC)

This author did an excellent job outlining the investment thesis for Bank of America. His premise is that the warrants are more attractive than the common stock due to the inherent leverage involved, but I tend to disagree because a large percentage of future profits are likely to be paid out via dividends, and I'm more comfortable allocating a substantial amount of money to an investment when time decay is not constantly working against me. Bank of America has really improved since the departure of Ken Lewis and the promotion of Brian Moynihan to CEO, as they have made tremendous strides at improving capital ratios. In three years I believe Bank of America could be paying out approximately $1 a share in dividends which would be a relatively small payout ratio of 50%. With the stock trading at about $8 a share, the yield would be 12.5%, and the earnings yield would be 25%. Of course the stock would likely be far higher assuming they are earning $2 a share, but by getting in at these cheaper prices and being patient, you are ensuring yourself an extremely low cost basis.

http://www.gurufocus.com/news/167450/why-invest-in-bank-of-america-common-stock-when-you-can-invest-in-bofa-warrants

Disclosure: I am long BAC.

Stocks: BAC