5 reasons to buy Bank of America

BAC stock has been weighed down by the Goldman Sachs scandal, but here are some reasons to buy BofA while its a bargain

By InvestorPlace Apr 28, 2010 10:56AM

By Jim Woods, Investorplace.com

 

bank of america bac stock logoThe banking industry is in the hot seat these days, with fraud allegations surrounding Goldman Sachs (GS) sparking a wave of financial stock downgrades recently.

 But negative news isn’t always a bad thing for investors, because it creates huge buying opportunities if you know where to look. And if you’re in the mood for bargain hunting in the financial sector, you may want to consider buying Bank of America (BAC) sooner rather than later. This financial stock looks to be doing just fine – and here are the top 5 reasons why:

 

Outstanding recent earnings.  On April 16, BofA reported first-quarter earnings that easily bested analysts’ expectations.  The company said it earned 28 cents per share in the quarter, way above consensus forecasts for earnings of just 9 cents per share. Although total revenues fell 10.6% year-over-year to $31.97 billion, that number was much higher than consensus forecasts for revenue of $27.97 billion consensus.

 

Improving conditions in all business units.  The outstanding first-quarter profit of $3.2 billion was BofA’s first venture into the black in three quarters.  A big part of this profitability was strong investment banking numbers and operations inherited in its acquisition of securities firm Merrill Lynch. But the gains from Merrill weren’t the only areas of good news.  Five of BofA’s six business units were profitable during the first quarter, and that means the company’s profit engine is nearly firing on all cylinders.

 

Improving non-performing loans.  The banks non-performing loans, leases and foreclosed properties were $35.9 billion, just slightly higher than the $35.7 billion in the fourth quarter.  However, the provision for credit losses was $9.8 billion; $305 million lower than the fourth quarter.  Also, consumer credit delinquencies seem to be on the mend. Among credit-card users, the number of loans at least 30 days late declined, and that allowed BofA’s credit-card unit to earn $952 million during the quarter. Credit quality across most commercial portfolios showed signs of improvement, and net charge-offs in the commercial portfolios declined across a broad range of borrowers and industries.

 

Recent analyst upgrades.  BofA recently received a slew of positives from analysts, including upwardly revised 2010 price targets. These increased price targets were largely the result of the healthy first-quarter numbers.  Citibank lifted its 2010 price target to $26 from $23, and maintains a “Buy” rating on the shares.  Barclays lifted its price target to $21 from $20 and maintained its “Equal Weight” rating on the shares, while UBS set a price target of $21 on the shares along with its “Buy” rating. Renowned growth stock investor Louis Navellier also recently gave BAC stock an upgrade in his proprietary fundamental rankings.

 

Pullback means opportunity.  After BofA’s earnings report, the stock surged to new 52-week highs.  However, with uncertainty over what the final financial reform legislation will look like, and with Goldman’s troubles souring the banking sector, BAC shares have pulled back sharply.  But that pullback may actually represent a good buying opportunity in the shares, as the selling in BAC is likely due more to traders’ fears of the unknown, and not any inherent issues with the company. 

 

As you can see, there are plenty of reasons to consider buying BAC stock. For those that are really adventurous, check out 5 reasons to buy Goldman Sachs stock.

 

As of this writing, Jim Woods did not own positions in any of the stocks mentioned here.

 

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