NEW YORK ( TheStreet) -- Sell-side analysts usually steer clear of hanging their bank stock picks on book value these days, but there are still some large banks that look exceedingly cheap on this basis.
There was a time, only a couple of years back, when investors with long-term horizons could easily scoop up big bank stocks trading just above half tangible book value. Depending on the timing of an investment, this approach netted huge gains for mediocre but grossly undervalued money center banks, such as Bank of America (BAC - Get Report), whose stock returned 110% during 2012.
Bank of America's stock has returned 21% this year, through Wednesday's close at $13.96. That's just above the company's reported Sept. 30 tangible book value of $13.62 a share.
Many analysts and investors prefer at this point to focus on forward price-to-earnings ratios. Bank of America's shares trade for 10.2 times the consensus 2014 earnings estimate of $1.34 a share, among analysts polled by Thomson Reuters.Considering BAC's rather low returns on average tangible common equity (ROTCE) -- 6.97% in the third quarter, improving from 0.95% a year earlier, according to Thomson Reuters Bank Insight -- the stock looks rather expensive on a forward price-to-earnings basis. Discover Financial (DFS), for example, trades at the same forward P/E as Bank of America, and its third-quarter ROTCE was 24.30%, declining from 25.00% a year earlier. Please see TheStreet's Discover Tops List of Cheapest Banks With Greatest Returns for a discussion of the bank stocks with high ROTCE trading at lowest forward P/Es.