NEW YORK (TheStreet) --Bank of America (BAC) shares, which were up 111% year to date as of mid-Friday, could tack on another 50% worth of gains in 2013, argues a well-known bank stock picker who acknowledges that "retail banking sucks," as a business.
Bank of America is one of the top 5 holdings of Second Curve Capital, which invests exclusively in financial companies, and lead portfolio manager Tom Brown says the stock is the one he is "most excited about," in his portfolio. He compares Bank of America to its former incarnation as Nations Bank, when he covered (and recommended) the stock as a sell side analyst in 1988. That year, the shares doubled, and they gained another 50% in 1989.
"That's what this reminds me of. It's going to be pretty close to a double this year and I could easily see it having another 50% move next year," Brown says.
Brown, who met Thursday with Bank of America CFO Bruce Thompson, sees a potential decline in expenses of $18 billion over the next three to four years. Ten billion of that total is projected to come from a division known as Legacy Asset Servicing, as Bank of America lays off employees working through the backlog of troubled mortgages the bank extended during the runup to the subprime crisis. The remaining $8 billion would come from a cost-cutting program known as "new BAC."The investor cautions he will have to check in quarterly to be convinced that Bank of America is sticking with its cost-cutting plan. "It's easy to talk about them; it's another thing to actually deliver them," Brown says of the cuts. Also encouraging to Brown is the potential improvement in Bank of America's capital structure as costly interest payments on the bank's debt run off the balance sheet. While Bank of America's long term debt is just one third the size of its deposits, the cost of that debt is five times that of the deposits. Nonetheless, Bank of America has reduced its debt from $531 billion to $287 billion, and another $64 billion is due to mature through 2014.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV