Is the fiscal cliff a buying opportunity?


The fiscal cliff looms over the whole market, and this just might produce some interesting trading ideas.

Hedge funds and others will be all ears, as the drama plays out. Guggenheim Securities analyst Marty Mosby has put forward an interesting idea on Bank of America, as noted by Mosby is bullish on the stock. His 12- month target is $12 a share, which would represent a nice premium over the current price. But he also think the stock could be in for short-term turbulence due to the fiscal cliff drama.

Mosby has told clients that he believes "BAC could trade below $8 over the next three months if it becomes apparent that the U.S. economy is about to be pushed over several of the upcoming Fiscal Cliffs."

The analyst's "short-term trading range for the next three months for Bank of America is from $7 to $8 a share, based on a 60 percent price to current tangible book value multiple. BAC currently trades at 73 percent of current tangible book value."

So what are the risks to this idea?

It all depends on fiscal cliff drama intensifying to the point that stocks react significantly on the downside. The firm is convinced that this could happen. According to Guggenheim's Washington Research Group, several major sticking points need to be addressed before "there can be real optimism on a deal to prevent December ending like Thelma and Louise." 

Mosby argues that "the risks to this tactical trading call are twofold: Washington politicians work together to craft the 'Grand Bargain,' avoiding the upcoming Fiscal Cliffs, or the economy builds up enough momentum to absorb the unfavorable impacts of higher taxes and spending cuts and still keep growing."

For more:
- here's the article

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