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10 Bank Stock Value Picks

8. Bank of America
Shares of Bank of America (BAC - Get Report) closed at $7.74 Friday, returning 39% year-to-date, following a 56% decline during 2011.

The shares trade for 0.6 times tangible book value, and for 8.4 times the consensus 2013 EPS estimate of 92 cents. The consensus 2012 EPS estimate is 56 cents.

Despite the strong year-to-date return, Bank of America's shares still trade at extraordinarily low valuations because of the overhang of mortgage putback claims, mainly spring from the disastrous purchase of Countrywide during 2008. During the second quarter, total mortgage repurchase claims increased by 41% to $22.7 billion, from $16.1 billion in March, with private mortgage investors putback claims climbing to $8.6 billion from $4.9 billion.

Bank of America continues to refuse to repurchase loans from Fannie Mae, as the two companies argue over "what constitutes a valid repurchase request," -- according to Bank of America CFO Bruce Thompson.

Mosby also rates Bank of America a "Buy," but on Friday raised lowered his price target for the shares to $11 from $10, reflecting "our expectation that BAC should continue to experience a deficit return to its 17% estimated cost of capital." The new price target is "around a 30% discount to year-end 2013 tangible book value per share," he said.

Mosby makes the case that Bank of America is for long-term committed investors, as "BAC's current discount to tangible book value per share represents the potential upside once the market decides that BAC doesn't need to issue incremental capital to fund future losses from Countrywide's residential real estate overhang issues and that these future losses could be covered with future earnings."

Guggenheim believes that Bank of America will not need to raise additional common equity to comply with the Basel III capital requirements, however, "BAC still needs to accumulate capital as quickly as possible to get into compliance."

Mosby said that "that until short-term rates begin to rise BAC's earnings power is between $10 billion and $12.5 billion a year," and that the company faces "potential remaining after-tax losses of $15-$50 billion" from mortgage repurchases. "While our best-case scenario could be funded with about one year's earnings, the worst-case scenario would likely create a $2 haircut to BAC's year-end estimate tangible book value per share of $14," he said.

BAC Chart BAC data by YCharts

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.
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SYM TRADE IT LAST %CHG
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