BAC - Bank of America Corp.

BAC - Hot stocks to buy entry price: $10.25

• Risk level: 10
• Profit potential: 8
• Price Target = $15
• Bank of America is rated an extreme risk and will move with any news

Today we have chosen BAC for our Hot Stocks to Buy. BAC represents a great opportunity for long term investors for several reasons.  The first reason is they are the leader in the banking industry and they will come out of this crisis in the strongest position. Another reason is, the government will do anything and everything to keep banks from crumbling and as you can see from the past year, banks have received all the sweetheart packages in bailout funds. Other reasons can be read below as it is much better explained by experts in the industry. Hot stocks to buy thanks Yahoo, Bloomberg and other sources for helping with this posting.

Positive Comments from Former Oppenheimer Analyst Meredith Whitney’s recent comments:

• “Layoff on shorts…The fundamentals are not getting any better but capital ratios should get better…”"
• Bank earnings may show improvement in the first quarter, though the sector still has far to go in recovering from the credit crisis..”
• “I think you’ll see a directional turn, Banks will make money, some as little as a penny a share, but they won’t lose money.”
• “The banks should be seeing some benefits from the revised mark-to market rules in the first quarter.”

A Positive Article from Bloomberg:

Covering Losses

Bank of America is cutting more than $7 billion in annual expenses after its acquisitions of Countrywide Financial Corp., formerly the largest U.S. home lender, and Merrill, the world’s largest securities brokerage.

Bank of America’s expected pretax earnings of $49.3 billion in 2009 exceed the $38.3 billion in total losses likely to be recognized over the next few years, Fox-Pitt Kelton Cochran Caronia Waller analyst Andrew Marquardt wrote in a report last month. The bank has already recognized $31.7 billion in losses by marking down the value of loans and securities, he said.

“Based on our estimates, it would take less than a year to cover estimated remaining loss content,” Marquardt wrote in the report. He rates the bank at “outperform.”

An Investor’s report on best overall bank to invest in. BAC is rated best overall.
BAC, JPM, WFC and C are largest four US banks.

At this moment, let us assume (I am 99% sure) that all four will survive this crisis and back to normal level as years 2006 and 2007.

First let us check their historic EPS

Company 2006EPS 2007EPS Aver (07,08)

• BAC 3.35 4.66 4.005
• JPM 4.5 4.17 4.335
• WFC 2.4 2.5 2.45
• C 0.75 4.3 2.525

Now Let’s check the stock dilutions:

Company Dilution shares (Bn) Total Shares Share Before dilution % dilution

• BAC $10B @ 22 = 0.455 6.4 5.945 7.1%
• JPM $10 @ 42 = 0.238 3.76 3.522 6.3%
• WFC $10B @ 27 = 0.370 4.24 3.870 8.7%
• C $57B @ 3.55 = 16.06 21.57 5.510 74.5%

Next, let us project the EPS in future (say 2011 to 2012)

Company EPS before dilution EPS After Dilution

• BAC 4.005 3.721
• JPM 4.335 4.06
• WFC 2.45 2.236
• C 2.525 0.645

Finally, let us calculate the potential stock price in future and % gain from their current stock price

Company EPS before dilution EPS After Dilution 2007 Stock high Mutipler Expected 2011 Stock Price Current Stock Price % Gain from now

• BAC 4.005 3.721 55 13.733 51.094 10.44 389%
• JPM 4.335 4.060 53 12.226 49.644 32.56 52%
• WFC 2.45 2.236 44 17.959 40.157 19.55 105%
• C 2.525 0.645 57.00 22.574 14.563 3.97 267%

By above simple comparison, at the moment, BAC is the most undervalued stock among the four.

The entry price that we have started on this stock is $10.25. We are looking for at least a 50% gain on this stock in the near term (within 6 months). Any entry below $11 is recommended in the near term.

We wish you good luck on your investments and as always do your own research prior to purchasing or selling a stock. We make recommendations based on our own research and this site is solely for the purpose of entertainment reading. Thank you for visiting Hot Stocks to Buy.