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Alan R. Goozner During the 1994 Peso crisis, I started an e-mail newsletter. This followed from my comments to Mexican interest groups and list servers on the rapidly expanding Internet. The newsletter became a copyright publication : "The Mexican Commentary." This had a limited paid... More
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  • Long-Term Strategy to Accumulate Bank of America - BAC 2 comments
    Apr 6, 2010 4:35 PM
    This presentation is a rough estimate but the degree of needed accuracy to visualize the ratios precludes the probabilities of the final outcome for it not to be needed. 

    Basic premise : Bank of America should recover to some similar degree of its former greatness. 

    The company is approximately 64 percent larger measured by total revenue with the combination of Countrywide and Merrill Lynch but the huge amount of additional stock dilutes the per share potential. With the number of warrants outstanding and current float on the books,  I estimate total annual revenue per share as only 2/3’s of its pre-merger/ buyout level. Considering that BAC traded in recent years into the 50s, the potential to reach that level again would not be a realistic goal but getting above 30 would be very realistic. My major assumption is that the profitability of the new business combination would be similar to the pre-merger level.
     
    My estimate is 32-33 as realistic target for BAC to reach its full valuation potential assuming no growth in revenue.

    Being a conservative investor with the desire to reap the benefits of ownership from a dividend that should soon increase and if paid in a similar ratio to earnings as in the past, I mapped out a strategy to acquire full ownership of a position with limited initial risk
    .
    The method is through ownership of the warrants.

    There are two classes of warrants: A & B. The A’s trade in the $10 range and are convertible into common for $13.30 additional per share to be exercised by January 2019. The B’s are a more speculative play, trade close to $4 but are convertible at $30.79 per share up to October 2018. I currently own both the A’s and the B’s but plan on acquiring a full position of the A’s.

    My strategy is to reinvest the proceeds of a zero Treasury bond coming due in 2017 in my IRA account. Facing mandatory withdrawals within 7 years, I am buying the warrants in my taxable cash account.
     
    If the whole thing fails, I’ll be able to write off the loss against other capital gains. But if successful, I’ll own a higher yielding “qualified” dividend paying stock that is taxed less than my IRA withdrawal if my income pushes me into AMT doodoo land.


    Disclosure: I am long BAC and both A&B warrants and have it also in my wife's IRA account along with BAC preferred securities
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  • MexCom
    , contributor
    Comments (3057) | Send Message
     
    Author’s reply » Its been awhile since I did this analysis. The warrant has declined sharply but staged a sharp rally yesterday at the last day of trading for October. The spike up to $.84 on 10/31 still has it priced below the average ratio to the stock price thus far this year of .095. As I type this, the ratio today (11/2012) is back down to .082 (.77/9.39.)

     

    I have noticed that some of the price spikes have been associated by end of month positioning. End of month activity also has been seen during sharp declines. Needless to say, this volatility is unnerving but could present unique opportunities for trading. The only draw back is the thin trade. The selling opportunity was only present for less than 1/2 hour yesterday. I lightened up a bit but would certainly buy those that I sold back if it should continue to decline in the short run.

     

    Hopefully others will join me to offer more liquidity for the trade to help stabilize these wild price swings - and also profit in the process while we wait for BAC to get back to its former greatness sometime before 2018 when the warrant expire.

     

    http://seekingalpha.co...
    1 Nov 2012, 10:14 AM Reply Like
  • MexCom
    , contributor
    Comments (3057) | Send Message
     
    Author’s reply » Taking another look at the situation since the announcement after rescinding the dividend increase, I took another look to see what it will take to have the "B" warrants have any value before expiration. Running a spread sheet - this past year the average daily change in the warrant price is zero. The warrants have maintained their recent value.

     

    To reach the redemption value of $30.79, the stock price needs to rise slightly less than a penny per calendar day (albeit that the number of trading days of the NYSE is substantially less.) At an average stock price increase of 2 cents per calendar day. At stock price of $47.05 would be realized to make the warrant value $16.26.

     

    This is certainly in the rang of possibilities and could even be exceeded. Coming off the recent low created by the shock of the accounting error - the rebound could be worth a $2 bet.

     

    $BAC
    9 May 2014, 10:54 AM Reply Like
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