A stock so bad it can only get better

This much-hated bank is a stinker for sure. But with so much holding it down, it's bound to come back up eventually.

By Jim Cramer Jan 16, 2014 12:29PM

A Bank of America sign outside a bank branch in Arlington, Va. © Saul Loeb/AFP/Getty ImagesThere's nothing like a hated story. As I signed books last night at the 92nd Street Y in Manhattan before perhaps one of the most knowledgeable audiences you are ever going to get, I again met with great resistance to my idea of buying Bank of America (BAC).

 

Understand that there's no derision to the push. No one says, "You have no idea what you are doing." That kind of critique typically has to do with my insistence that I can't find a metric to justify getting behind Twitter (TWTR). 


People want me to foment one. That's what you do when you are desperate to get behind momentum, and I have enough problems staying behind Amazon (AMZN) and Netflix (NFLX) -- particularly the latter after this week's Net neutrality court ruling. That apparently could cause Netflix to raise prices, but for all the wrong reasons. The stock has been a terrific play on Net neutrality, as it is often reported to consume one-third of peak Internet use.

 

No, it is Bank of America that people don't trust. Here's the skinny on the pushback.

 

First, the company is run by someone who doesn't know how to run a bank. I think the Bank of America that Brian Moynihan inherited was entirely dysfunctional, put together on the fly, with the worst possible acquisition of the era: the $4 billion stock purchase of Countrywide. The Street on MSN Money

 

That target, which financed 20% of the 2006 mortgages, was worthless. We don't have the exact tally, but it is entirely possible that almost all of those mortgages defaulted, as that was the worst vintage possible. I don't know a soul who could have managed that poison pill properly, and it took forever to work through the system.

 

Two, the liabilities haven't gone away. Judging by the $2 billion litigation expense in the fourth quarter, this could be the beginning of a second round of mortgage putbacks and struggles with the authorities. It is true that there are more issues to settle. There could be more liabilities as well, based on some recent settlements with JPMorgan Chase (JPM) that could indicate B of A still owing as much as $8 billion -- the sums are all over the place. But B of A made $3 billion after the litigation charge, and it could handle $8 billion incredibly easily.

 

Three, there is still no dividend to speak of, and B of A seems reluctant to put a larger one through. All I can say is the size of the dividend is not up to Bank of America. Lots of people think the regulators have gone away, but that's not so for banks that were in as much trouble as Bank of America was. The last time B of A was in this good a shape was in 2006, when it paid a dividend north of $2 a share. At this run rate, that's certainly a possibility once again. The stock would have a gigantic yield if it could pay that again, and I think it will eventually.

 

Four, the company would be worth more if it broke itself up, and that idea did have some gravitas until this quarter. I think we saw tremendous synergies this quarter between Merrill Lynch and Bank of America, and Merrill had the best investment banking numbers this quarter. That's right, No. 1.

 

Finally, fifth. Without a doubt there's a belief that, without a mortgage pickup, this one's got no earnings momentum. The mortgage business is a commodity, one of the worst parts of any bank's business right now. What really matters is the net interest margin, which is truly a function of deposits and yield curve. These banks will simply coin money as rates go higher, and this is already starting to grow the net interest margin after a period of much contraction. The deposit growth was almost in the double digits here. The leverage will be immense. You want fewer mortgages and more deposits, and that's what Bank of America is giving you.

 

On my way to the Y last night, a man walking a dog said to me, "Bank of America -- I mean, really?" I said, "Oh, yeah, still very cheap." The man then made an allusion to how much money he could make with "tips" like this one. Scornful. Another person in line at the Y asked, "Do you know how much money I have lost on Bank of America?" All I could say was: "I don't care where a stock came from. I just care where it is going."

 

Considering that this one has gone back only to where it had been in 2011, and considering that it's down from its 2006 peak of $55, I think it has the most upside potential of any bank in my universe. Sorry, I wish I could be more negative. But I just don't have a case for it.

Jim Cramer headshot

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long BAC and JPM.

 

Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.

 

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97Comments
Jan 16, 2014 1:12PM
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It's quite ironic that Bank of America represents everything that honest America depositors, investors and savers dislike about what we just went through in the last 5 years.  BAC, along with the Congress, FED, Justice and Treasury,  have spent the last 5 years putting the cost of the Greatest Financial Screwing in history on the shoulders of those who did not cause it while stealing even more funds from them to pay those that participated in the mortgage fraud and mistakes.  I will never ever buy a product or service or invest in either Bank of America or General Motors. I don't give a damn if there stocks skyrocket, I'd rather put my money in a pile in the desert and burn it.
Jan 16, 2014 12:59PM
Jan 16, 2014 1:14PM
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cramer should write a book on grifting


Jan 16, 2014 1:05PM
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"Do you know how much money I have lost on Bank of America?" All I could say was: "I don't care where a stock came from. I just care where it is going."

 

You're lucky this guy didn't clock you.

Jan 16, 2014 1:17PM
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Cramer November 20th on Best Buy ....

 "All three chain stores -- Home Depot, Dick's and Best Buy -- are pictures of strength, not weakness. All three stocks should be bought, not sold, on share weakness, despite whatever the "action" says about how well the companies performed. They have performed superbly against both their fields and against retail in general."

More wonderful advice from the master of bluster .... 
Jan 16, 2014 12:46PM
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Perhaps management should try beating up homelesss people or strangling their spouses to get them in the proper bankers "mood" 
Jan 16, 2014 1:19PM
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Best Buy down 30% today !! Nice one Bobo !! 
Jan 16, 2014 1:14PM
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I agree! I have been buying on the dips since Dec 2008, currently up 39%.  My sell target is near $30, unless a dividend appears.
Jan 16, 2014 3:44PM
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For starters Bank of America should be broken up into at least a hundred smaller banks and the name and logo retired. Exactly how stupid is their mamagement? They bought Countrywide. Wow. Who would ever deposit any money with them? That goes for JP Morgan too. Isn't it time a greedy guy like him is forgotten.
Jan 16, 2014 1:02PM
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These back and forth  oscillations mean it is getting harder to get and keep new money coming in.   Perhaps the Bull is getting a bit tired. Probably wait till options day to get a bit clearer but the bucket appears to be leaking. Jim really had to reach for one to try and pull B of A into the fold. Notice how yesterdays earnings are already yesterdays news. I didn't figure that little puff up would last. End of the month looks like a good time for a sea change but you never know. Im thinking get a few good shorts ready or find some losers to unload.
Jan 16, 2014 2:41PM
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The trouble with B of A goes way back, back to the evil "marriage-of-equals" that stole B of A away from it's San Francisco foundation.  Thousands of loyal people lost their jobs in the deal, the headquarters moved to Charlotte, and those who had run the bank were cast aside.  It was a horrible deal!  For the generations of people in the SF Bay Area who had relied on the bank, it soon lost appeal and began to lose assets to the more neighborly-seeming Wells Fargo, and our ever-hospitable Charles Schwab & Co.  The massive acquisitions (Merrill Lynch, Countrywide) are just an extension of the hubris with which Nations acted in that initial take-over of good old B of A.  The thieving nature of that take-over destroyed generations of good-will here in the Bay Area.  It's not coming back.  I walk into my local branch, and where before I would see local people who I knew for years at work, now I see maybe three new faces each visit and another new manager who I've never seen before.  It's another capitalist tragedy, one more cost of deregulation.  No, Cramer--and you lived here for awhile, so you know--people aren't buying back into B of A.  And thank god, Chuck Schwab was smart enough to buy his brokerage back from B of A before this all got bad!
Jan 16, 2014 2:32PM
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This stock is down so much it has nowhere to go but up!*

 

 

 

*The same mind set that has lured many an unsuspecting investor to their doom on the quagmire of the Pink Sheets...

Jan 16, 2014 1:40PM
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I bought in at 11 a share. Its now over 17. Im a happy puppy. Will hold until over $35 a share. Upside? Yes!

 

Jan 16, 2014 2:31PM
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Let's talk about trucks.  I like trucks!

 

 

 

Jan 16, 2014 2:22PM
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In other news... foreign investors known as the Hoo-Cut-The Holdings agrees to buy-out Chuck E's ownership interest in the Chuck E. Cheese Pizza Party business. Chuck E. will have his name dropped from the marquis. The new name will be: Hoo Cut The Cheese.
Jan 16, 2014 2:08PM
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i wouldn't pi*s on Bof A…   i will do everything i can to put them out of business….
Jan 16, 2014 2:18PM
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Jim's analysis of the Countrywide purchase is good.

 

 

 

I wonder how many paper clips Bank of America has?

 

 

 

Jan 16, 2014 1:19PM
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Dicks', Best Boy & Homo Depot  ....abs favorite threesome .... arf arf...
Jan 16, 2014 3:43PM
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Good news Little Beav........... if you can swing a ticket to Amsterdam you can work for beer... Just imagine not having to beg on the corner so you can pay for your "pearl of wisdom"........... Hey, maybe Double V can pretend you up a ticket.
Jan 16, 2014 2:05PM
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Jimmy, seeing how all the Too Big to Fail, Too Big to Jail Banks have all only gotten far Bigger, so have the Risks they all pose to the Global Economy. But of course, Old Jimmy doesn't care about that. Uncle Ben sold out America to save Too Big to Fail, Too Big to Jail, and so has Jimmy.
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