We're going to add to two names that are below our cost
basis, buying 100 shares of Eaton (ETN:NYSE) at $70.44 and
200 shares of Bank of America (BAC:NYSE) at $15.51, after
you receive this Alert. With this trade, we are also moving
BAC to Two from Three.
We wrote this morning that both the Dodge Momentum Index and
the Architectural Billings Index reported strong
non-residential construction results in July. The Dodge
Index also posted stronger three-month and six-month average
figures, and the ABI included inquiries that now stand at
multi-year highs. ETN is a way to play this theme (60% of
revenue is tied to electrical end-markets), and it has been
hit hard since reporting a disappointing quarter. We believe
CEO Alexander Cutler has something to prove and will go out
on top (he is slated to retire in two years) and, at a
minimum, improve execution. The stock is totally out of
favor and is worth adding at this level to improve our cost
BAC is a change of tone for us. The stock is below our basis
and has gone out of favor given the legal overhangs tied to
its faulty mortgage-backed security loans. The company
reached a $17 billion settlement with the Justice Department
(we previewed this a few weeks ago in our Aug. 7 Alert) and,
although it was expected, it removes a large overhang on the
The cash component is $6 billion and we expect the company
to take a $3 billion charge ($0.25 per share). Also, we
fully expect that 3Q will be another messy one. That said,
the stock has lagged the group and we expect catch-up --
especially now that the company is checking off the boxes
one by one -- with settlements, Comprehensive Capital
Analysis and Review (CCAR) success and implementation of its
aggressive cost-cutting program. Slowly, the company is
working on regaining shareholder confidence and creating
The stock (and sector) really needs rates to improve for NIM
to recover and profitability to improve; every 100 bps
increase in short rates equates to $3.4 billion in net
interest income, or $0.15 to $0.20 per share.
We still feel that rates will rise eventually, but more
likely at a gradual pace, which is why we have become more
selective in our bank positions (we've chosen to diversify
into American Express (AXP:NYSE) and are looking to add AIG
(AIG:NYSE) on a pullback). But we do see value in BAC with
shares down 15% from its highs, and we should see it catch
up to the group now that the bulk of its legal issues are
behind it and focus can return to improving execution.
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long BAC, ETN and AXP.
We are buyers on weakness.
GE may be close to selling its appliances division while also ramping up its aircraft engine production.
Given the geopolitical news and the market's day-to-day swings, we are holding more cash than usual.
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