Jan. 22, 2016 1:06 PM ETBAC, BRK.B
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Long/Short Equity, Value, Special Situations

Contributor Since 2012

Nothing I say is investment advice.  Nothing I have ever said is investment advice.  Mostly just thoughts - none of which should be taken as advice or direction.       

No need for an article here as both these companies are over-coverd, but BAC and BRK(.A or .B) are both cheap. Both of the positions have become near-full positions over the past week. BRK around $125 and BAC under $13.70.

These past couple weeks have been a surprise and have caused a lot of action compared to my incredible sloth (though not in research) over the past year. I've been buying things...and it feels...different.

The one question I have surrounding BAC is what their true exposure would be if we see a turn in the credit cycle (due to anything really). They're estimating their O&G losses would be minimal under their normal stress test scenarios - which are far from trustworthy (though perhaps that's just recency bias). I'll continue to watch Moynihan closely, though I trust he'll continue his pace of cleaining house and suring up the balance sheet. My investment thesis doesn't rely on rates rising. That would probably be a foolish thing to bet on...but i guess one can hope. BAC is not the same BAC it was in 2007, 2008, or 2010. Tangible asset to tangible equity has more than halved, insured mortgages has increased 3-4x, credit profiles on customers carrying credit has drastically improved, liquidity has more than doubled and debt has come down some $250 billion and the balance sheet has shrunk by some $600 Billion. I think the thesis of a lot of BAC investors relies heavily on their improving ROA and returns on tangible equity. One could make a pretty decent argument that even with the falling off of litigation costs and LAS expenses continuing the path they have since 2012 BAC could see pre-tax earnings in the 25-30 Billion range. One doesn't need a market multiple for this to be a good investment. 25-30 Billion pre tax at 11-13x earnings could be realistic.

TBV is at $15.62 and Book at 22 and change.

Disclosure: I am/we are long BRK.B, BAC.

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