Tuesday, 27 July, 2010

quadrupled Bank of America position

It was nice to see my adjusted cost base plummet today as I quadrupled my stake in US Bank, Bank of America (BAC).  The stock is trading around $14.25 per share.  The dividend was all but wiped out during the financial crisis but I believe that it will come back with a vengeance over time.  Bank of America is very well positioned to reap the benefits of a slow US economic recovery, which is probably in the works.  The risk/reward on Bank of America trading at these levels seems very attractive as they own several valuable franchises, have great market share in US deposits, and have paid back their TARP funds.  The bank is currently trading at a multiple on around $1.00/share of earnings which I believe has the potential to expand to $2 without much trouble.  This would put the stock price easily into the $20s which is a signficant jump from here.

The dividend will come back as they years go on as inventors will want income from their investment in this large bank and the bank will no longer be tied down with the lingering issues of 2008.  This stock is rated a strong buy by 70% of analysts that cover it.  Earnings will come back as well albeit slowly and probably won't get to 2006-2007 levels anytime soon.

This is one of those trades where I felt like I needed to do the Warren Buffet thing and buy when others are selling; when the stock does not look attractive.  This industry is still in the toilet, their balance sheet is still recovering, and the economy is still pretty bad.  This is a good time to lower my cost base from my purchase years ago.  One of those 'close your eyes and click submit' trades.


Financial Cents said...

Way to go and pull the trigger MG!

Anonymous said...

I don't really have an opinion on the stock but did notice you have a number of financials already.

Are you worried about sector concentration (40%-ish in financials)?

MG (moneygardener) said...

I am about 35% financials in my Non-RRSP. I am not concerened with this concentration. I think it is about right where I want to be. I would not go over 40%.

Canadian Dollars said...

Hey MG, I like the potential that Bank of America has as well. For those of us with a long term investing horizon this one is filled with plenty of potential.

Anonymous said...


The mortgage fraud industry suffered another major legal blow. The Mortgage Electronic Registration Systems (MERS) is an overly clever property title database. MERS was again was permitted zero legal standing, this time by California courts. Homeowners can often flaunt the banks and not pay, without risk of being expelled from their homes. The public is pulling off strategic defaults more often, and simply defying banks on an increasing basis. The potential for successful civil disobedience, Henry David Thoreau style, has never been more ripe. Already 250 thousand Bank of America mortgage holders in the United States are not paying anything in monthly payments. The US Bankruptcy Court for the Eastern District of California has ruled that MERS cannot transfer a note (home loan mortgage) for want of ownership. MERS has proven to be the point of extreme legal vulnerability for the Wall Street bond purveyors. It was originally designed to track the property titles, put them in a national database, and facilitate the brisk sales between parties of mortgage bonds tied to those titles that constitute the income stream from monthly loan payments. The courts have ruled consistently that MERS has no legal standing and cannot serve as the lever that removes a person from the home via foreclosure. Again MERS holds the titles, but MERS has no legal standing to transfer the home loans in the foreclosure process. The importance of the string of negative court decisions (State Supreme Courts) is significant in permitting home mortgage owners to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. Details of the case can be found in the July Hat Trick Letter report. When people stop making mortgage payments, that is bad. Banks retaliate, and that is bad. USEconomic decline will worsen, resulting in a powerful second round of Quantitative Easing. That will amplify attention to fast debased debauched currencies, and push upward the price of Gold.


Jim Willie CB
Editor of the "HAT TRICK LETTER"
Hat Trick Letter
July 28, 2010

Anonymous said...

You still thinking B of A is a good investment? Those Countrywide Loans are going to take them down. dump any of it you are still holding.

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