Architect of Alpha
Long-Term Stock Investor
Bank of America screens attractive at 12.3x on Wide Moat Intelligence, backed by an impressive dividend history. x.comÂ
Bank of America's Q1 shows a bank making money from market chaos, undercutting the recession pricing on large-cap financials. Revenue of $30.27 billion beat estimates by $1.64 billion, net interest income of $15.75 billion topped the $15.37 billion estimate, and equities trading of $2.83 billion beat $2.51 billion as the bank captured volatility. FICC trading missed at $3.50 billion versus $3.78 billion, the one soft spot. x.com x.comÂ
Bank of America's earnings miss extends beyond its one-time fine, so the selloff may not yet be fully priced. Investment-banking fees fell 11%; wait for fee income to stabilize before treating the drop as merely a fine scare. x.comÂ
Bank negativity may be priced in for Goldman Sachs, Morgan Stanley and Bank of America; stable credit and an active deal pipeline could bring relief. Goldman and Morgan Stanley are down about 14% in three months and sit 22% and 17% below their highs, respectively; Bank of America lost 13% in a month. x.comÂ
JPMorgan looks remarkably cheap against nearly every other bank despite being the best of them. Its forward P/E looks to be around 13. x.comÂ
Bank of America's estimated $92 billion in unrealized securities-portfolio losses and disappointing results support a bearish view despite bullish television coverage. The $92 billion figure is Kass's estimate, which business TV rarely discusses. x.comÂ
Canada's major banks, TD, Royal Bank, BMO, Scotiabank and CIBC, deserve a slight premium to US banks, but it has stretched way too far, with price-to-book almost double. @TheWiseIC expects the gap to close through Canadian banks rerating back to normal multiples. x.comÂ
U.S. Bancorp is cheap against its earnings at 11x, and 10x next year's, versus the 12x banks usually get. Fair value runs $61.28 to $77.99, or 12x next year's $5.80 EPS give or take 12%, above the $56.49 price. The call rests on valuation levels from reported earnings and estimates only, not fundamental work. x.comÂ
Bank of America risks losing its near-free checking deposits if cash agents move idle balances out between paydays. If software forecasts bills and refills checking before they're due, a fat cushion at the bank stops making sense; the bank keeps the customer but loses the cheap deposit. BAC averaged $957B of consumer deposits last quarter, 59% in checking, and paying more to keep cash hurts the spread. Broader transfer authority would speed outflows; for now, watch deposit costs. x.comÂ
Bank stocks look buyable if systematic selling is reacting to a flatter yield curve: the front end that drives earnings has barely moved. JPMorgan and Citi card spending rose 10% and 13%, and Citi and Wells Fargo reported lower credit losses. Wells expects steady margins and improving interest income as loans grow and old fixed-rate assets roll into higher yields. Funds crowded into banks before results, limiting near-term buyers. x.comÂ