Bank of America – time to take some profits

Sign up for FREE access to our Commentary & Past Stock Picks

The CymorFund Blog is a subscription service. Blogs about stock picks we add to our portfolio are available immediately only to Premium subscribers. All Subscribers have immediate access to the other categories of our Blogs, including Stock Picks that we have sold.

Bank of America (BAC) – Time to take profits

We added BAC to our portfolio at $14.72 and again at $15.80. The following chart shows the movement of the stock

We think there is a lot of room left in the upward movement, but it is always wise to take profits when they are there. There is an old saying – “You can’t lose money by making a profit.“

There is a nice profit, and the chart is weakening. BAC may drop a bit before the next move up.

So we will take some profits, and continue to hold a position.

We Sold BAC at $16.49

We earned $1.77 profit by holding 349 days, which is a 13% annualized profit. Not bad for a large cap.

Our original blog follows

Bank of America (BAC – $15.80)

Our previous post follows. We are adding a further position in BAC. It is an undervalued, unloved and misunderstood enormous banking corporation that is integral to the world banking system. It’s book value exceeds it market value.

Bank of America (BAC – $14.72)

May 27, 2014

What a great name! If anything portrays the image of the economic colossus known as the United States of America, it is the “Bank of America”. The image that the name conveys is powerful.

The Bank of America is a microcosm of the powerhouse known as the United States of America. Its tentacles extend across the globe. Its tremendous power extends around the world. Its excesses mirror the excesses of the tremendous economic cycles garnered by the economic system know as Capitalism.

But those excesses can be extreme. When the crash came, the damage was dramatic. The good part is that the Bank of America is big enough and strong enough to change direction, and recover.

What Happened

When BAC goes in the wrong direction, its failures are also enormous. In 2007, its stock price was in the $50.00 range. It was at the height of its power. But like America, the Bank of America does things in a big way. MBS (mortgage backed securities) brought BAC to its knees. The purchase of the infamous Countrywide Financial Corp in January 2008, was the final nail in the coffin.

Just before Bank of America Corp. swooped in to buy Countrywide Financial Corp. in 2008, the bank’s then-chief executive, Kenneth D. Lewis, told analysts why he had dropped his resistance to owning a mortgage lender.

“Arithmetic overcomes all your issues,” he told analysts. “If I ever did anything in the mortgage business, I would have to eat about seven years of my words, so it would have to be pretty compelling.” The nation’s largest bank by assets has been haunted by Countrywide’s numbers ever since the $2.5 billion deal was completed.

To this day, this purchase of Countrywide Financial has haunted the company.

Where is Bank of America now

The problems and settlements continue. In January 2014, the Bank of America announced, as expected, an $8.5 billion settlement with investors who took a beating on mortgage bonds issued by Countrywide before the housing market collapsed.

The Charlotte, N.C., bank also will swallow an additional $5.5 billion to buy back other defective mortgages in the future. And it took a $6.6 billion hit for lawsuits, foreclosure snarls, a write-off in the value of its mortgage business and loan-servicing adjustments.

The losses and settlements continue. The $8.5 billion was only one of a continuing series of lawsuits, penalties and settlement, that some say will eventually bring the bank to its knees.

Banks are now inspected much more closely than before the 2008 meltdown. As part of this process, the banks are required to report their status on a regular basis to the regulators. Bank of America stumbled yet again, and reported in April that a $4 billion mistake had been made. “The mistake, which had gone undetected for several years, led the bank to incorrectly report recently that it had $4 billion more capital than it actually had.” After Bank of America reported its error to the Federal Reserve, the regulator required the bank to suspend a share buyback and a planned increase in its quarterly dividend.

More problems continue to surface, almost on a weekly basis.

The Share Price

Like all the big banks. the stock price has risen on a continuous basis over recent years, reaching $18 / share. Then the latest debacle of the $4 billion overstatement of capital hit, and the stock plunged to $15, and then below.

There are multitudes of analysts and pundits who are forecasting doom and gloom for this company, and I shall not attempt to go through the myriads of detail and analysis here, If you are interested enough, there are innumerable sources of comment and analysis.

The Sheer Size of this Bank

While the sheer magnitude of these losses, settlements and fines are greater than normal comprehension, one has to look at the size of this enormous institution itself. Let’s look at some numbers:

Market Cap today (at today’s depressed price: $155,000,000,000 That is $155 BILLION. So the most recent $4 billion fine, is 2% of the Market Cap – the fine is not terribly significant.

Enterprise Value: $187 BILLION

Net Income Y/E Dec 31, 2014: $10 BILLION

Keep in mind, that these figures are taking into account all of the fines and settlements occurring or known about in the period. This is a cash machine, with enormous profits, and tremendous potential. The Bank of America was proposing to raise its dividend, and commence buy back of its shares before this latest announcement. These moves have now been cancelled – but only temporarily.

A Quote From the Oracle of Omaha

Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mis=appraised. ~ Warren Buffett

To be fair about Mr. Buffet, he came to the rescue of BAC in the meltdown and has an enormous number of warrants at a very cheap price that he has many years to exercise. BAC should prove to be one of his greatest investments.

Buy Bank of America $14.72

This website and authors’ opinions are intended to be informative, but information contained is not guaranteed as being accurate or a complete statement or summary of available data. We assume no responsibility for errors, omissions, or contrary interpretation of the subject matter herein. Any perceived slights, omissions, or mis-statements of persons, peoples, or organizations or other published materials are unintentional. This information is not intended for use as a source of legal, business, accounting or financial advice, & readers are advised to seek services of competent professionals. No representation is made or implied that the reader will do well from using the suggested techniques, strategies, methods, systems, or ideas; rather information is presented for news value only. We do not assume any responsibility or liability whatsoever for what you choose to do with this information.

We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied. Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer.