Big Banks Opportunity Coming: Look at Dividends

Includes: BAC, C, WFC
by: Keith Lenger

We love when the big banks fall out of favor. When their dividend yield starts to approach 5%, it is time to take a look. We are not there yet, so let's hope sub-prime, yield curve and investor sentiment continue to work them down.

The banks we are keeping an eye on are Bank of America Corp. (NYSE:BAC), Wachovia Corp. (NASDAQ:WB), Citigroup (NYSE:C). Out of the group our favorite bank is BAC. With a price-to-book of 1.68 (mrq), it is starting to look cheap in our eyes. In terms of retail product and deployment of technology it seems they are a ahead of the curve. Additionally, they have been able to integrate the MBNA credit card portfolio into their business with few hitches. We believe this to be a strong growth driver.

However, we do a bit of consulting on banking relationships and how companies structure their various banking methods, so we have sat through a few presentations. We recently were blown away by Wachovia's commercial capability for the large to small business. They are ahead of the curve. Granted, this is more anecdotal in nature, but I think there is great value in looking at the goods and services of a company to see how they operate and are received in the local market place.

Yes, I have that book by Peter Lynch. Should BAC continue to fall a bit further, it is an excellent candidate to sell the long dated puts and/ or go long the stock. It is our opinion that these banks have the ability to weather any issues that may arise from the mortgage portfolios. In the case of BAC they may have a few hidden issues, as their credit policies were lax during the last few years. Even if this is the case, we still think it could soon be a great buy.

BAC WB C 1-yr. chart:

BAC WB C Investment