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BOSTON ( TheStreet) -- Dow stocks, still among the cheapest in the U.S. market, are becoming popular investments of value-oriented hedge funds. David Tepper of Appaloosa Management held nine Dow stocks at the end of the fourth quarter. He's perhaps the most closely-watched hedge-fund manager today. Having more than doubled his fund in 2009, Tepper returned about 30% last year. He only buys stocks he considers to be undervalued. Below is an overview of his Dow picks, with a focus on fundamentals and valuation.
Bank of America(BAC - Get Report) is a diversified financial services company, with retail-, commercial- and investment-banking operations.
Tepper increased his Bank of America stake by 2.6 million shares during the fourth quarter, signaling optimism about the stock's 2011 upside. Bank of America's stock has fallen 2.3% in the past 12 months, underperforming indices. Currently, 21, or 60%, of the analysts covering Bank of America rate it "buy."
JPMorgan, ranking the bank "overweight", forecasts a rise of 35% to $20.
Deutsche Bank expects Bank of America's stock to fall to $13 during 2011.
>>> View David Tepper's Portfolio
Bank of America swung to an adjusted fourth-quarter profit of 30 cents a share, exceeding analysts' consensus estimate by 41%. But, its top-line figure, at just over $22 billion, missed consensus by 9.6%. The gross margin jumped from 48% to 61% and the operating margin widened from 15% to 24%. Bank of America's stock trades at a forward earnings multiple of 8.1, a book value multiple of 0.7 and a sales multiple of 1.1, 31%, 34% and 40% discounts to financial peer averages. The stock yields just 0.3%, but the dividend is predicted, on average, to triple during 2011.