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Bank Stocks Do It Again: Fiscal Cliff Winners

Stocks in this article: BAC AAPL GS I:BKX

National Association of Home Builders on Friday said its Housing Market Index showed that homebuilder confidence in December ticked up to 47, the highest level the index has attained since April 2006. The December print was up 2 points from a slightly downwardly revised November index reading.

Bank stocks lead the market for a second day, with the KBW Bank Index (I:BKX) rising 2% to close at 51.60.

Bank of America

Bank of America (BAC) was up over 3% to close at $11.36. The shares have now returned 105% year-to-date, which is, by far, the best performance among the components of the KBW Bank Index. This recovery followed an epic 58% drop in 2011, as the company's legacy mortgage mess springing mainly from its purchase of Countrywide in 2008 dominated industry coverage. Even with this year's stellar return, the shares are still down 14% since the end of 2010.

Bank of America's shares trade for 0.8 times their reported Sept. 30 tangible book value of $13.48, and for 11.8 times the consensus 2013 EPS estimate of 96 cents. The consensus 2014 EPS estimate is $1.25.

The shares have certainly been volatile this year, and opinion is divided, with 13 of the 35 sell-side analysts polled by Thomson Reuters rating Bank of America the equivalent of a "Buy," while 19 have neutral ratings and three analysts rate the shares "Underperform" or "Sell." Among the believers is Atlantic Equities analyst Richard Staite, who rates the shares "Overweight" with a $12 price target.

Staite estimates that following the completion of the next round of Federal Reserve stress tests in March, Bank of America will be approved to pay out $2.086 billion in dividends during 2013, while repurchasing $4.0 billion worth of common shares. The analyst expects the company's total return of capital during 2014 to be close to $14 billion, including $3.864 billion in dividends and $10.0 billion in buybacks.

Staite on Tuesday lowered his fourth-quarter operating earnings estimate for Bank of America by three cents to 17 cents, "to account for the relatively subdued trading environment in November and December." The analyst is way out in front of the consensus, estimating that Bank of America will earn $1.23 a share in 2013, with EPS rising to $1.53 in 2014.

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