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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (43354)	7/16/2011 2:21:30 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78628

I think that BAC is becoming less of a black box. It sure has large legacy problems but I think the new CEO Moynihan makes a good impression and promises no more acquisitions. It is interesting to compare BAC before and after the crises - shares increased from 5B to 10B (2x), tangible equity/share increased from 10$ to 13$ (12.5$ if you count in the mortgage settlement). Plus, they do own Merrill Lynch now. They also own stakes in China Construction bank and Blackrock, which are non-core and can be sold off. phx.corporate-ir.net In my opinion, this is going to be a company that has to muddle through it's issues 2 more years and then becomes a great dividend payer. the higher capital ratios for Basel III plus additional buffer will make Banks much more robust and hence market will assign a larger multiple to earnings than it has in the past. Well at least that is the bullish scenario. The bearish one is that fat tail risk hits and the stock become significantly impaired or even a zero. I think this chance is less than 20% though. Overall, I believe that the fat tail risk is embedded already in the shares but probably not in the overall market in terms of valuation. So, my believe is that BAC is a value stock at this point, even accounting for the risks. I believe that MS and GS have much larger issues with their business model that still depends on trading for the bulk of their earnings. They also have legacy issues ( read the Big Short) that right now do not seem to be in the headlines - but I do recall that MS for example specifically designed CDO that could declare a complete default when only a small slice of their holdings default (this was hidden in the footnotes somewhere if memory serves me correctly and the construct made a default almost inevitable). I don't even want to start how GS screwed and is still screwing their customers (just read about the episode with the Libyan Wealth trust where GS could evaporate a couple B$ without a contract in place, trading for their customers...)