This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Love America? Buy Bank of America (Update 1)

Bank of America story updated to include Sanford Bernstein downgrade in eighth paragraph.

NEW YORK (TheStreet) -- Bank of America (BAC)'s downgrade on Tuesday by Citigroup created a nice opportunity to get into the stock for anyone who is bullish on America.

That's because Bank of America's success or failure depends almost entirely on that of the U.S. economy.

If the economic fortunes of the U.S. climb back, even slightly, Bank of America ought to be a good investment.

At 41% of book value, Bank of America is the cheapest bank stock in the S&P 500, according to Bloomberg data. That is one third the price of Wells Fargo (WFC) and less than a quarter of the value of USBancorp (USB), which trades at 178% of book.

True, Bank of America was cheaper in December, when it traded at just 28% of book, but it is still ridiculously cheap by historical standards. In December 2010, even after the mortgage-related problems that have caused investors to pummel Bank of America's stock to its current low levels had been in the news for two months, Bank of America traded at 64% of book.

In December 2007, before Bear Stearns blew up but when pretty much every giant bank other than Goldman Sachs (GS) was preparing to report multi-billion dollar losses, Bank of America traded at 1.29% of book. In December 2002, Bank of America traded at more than double its book value, a valuation that was not at all unusual for the bank in the late 90s and early 2000s.

On a price-to-earnings basis, only JPMorgan Chase (JPM) is cheaper than Bank of America when it comes to S&P 500 bank stocks. Bank of America trades at 7.86 times trailing earnings, versus 7.45 for JPMorgan. On a price-to-forward earnings basis, however, Bank of America is again the cheapest at 6.76, according to Bloomberg data.

Sanford Bernstein analyst sees things differently, however. According to his calculations, Bank of America is one of the most expensive bank stocks on a price-to-2012 earnings basis at 12.5 times earnings. That's one of the reasons he downgraded the shares Wednesday. Still, he acknowledges the shares are cheap at just over 60% of tangible book value.

Why is the bank so cheap? Partly because all banks are cheap. Regulators aren't even close to forgetting about the panicky days of late 2008 and early 2009, and while big banks like Bank of America and Citigroup may have paid back all the bailout money they received from the government's Troubled Asset Relief Program at a tidy profit, many jobs and homes were lost in the process, and no one wants to see another bailout.

Stock quotes in this article: BAC, GS, JPM, WFC, USB 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,262.56 +89.32 0.55%
S&P 500 1,842.98 +12.37 0.68%
NASDAQ 4,034.1610 +11.4670 0.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs