Bank of America: Value stock darling or a high frequency trading darling?
Richard Bove, the media darling of bank analysts, had this to say about Bank of America (NYSE:BAC) in a note to clients, according to Business Insider: "It is now believed that BAC will lose an additional $32B in the next three years related to the housing crisis. Approximately, $9B of this money will be derived from its reserve. The remaining $23B will be charged to earnings at the rate of $2B per quarter for the next three years."
Bove called the expected losses "historic in proportion." Yet he and Citigroup analyst Keith Horowitz remain bullish on the stock, mainly on a valuation basis. At roughly $11 a share, the downside might be fully baked in the stock, especially if you buy the view that the bank will not be forced into a capital raise anytime soon. Thanks to asset sales in part.
This is welcome news for bank that was watching its stock tumble to the point that high-frequency traders were starting to salivate. Bove has a "buy" and a $19 price target. Horowitz tells clients "we believe Bank of America shares are a very attractive investment with limited downside and significant upside potential even factoring in a softer economic outlook."
Recall that at the height of the financial crisis many a big-name value investor got burned by the view that bank stocks had fallen so low they had become value buys. The stocks just kept on falling. That's not say we're in for a repeat with Bank of America.