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Bank of America's Continuing Pain Will Be Patient Investors' Gain

NEW YORK (TheStreet) --Bank of America (BAC - Get Report) is still reeling from a long litany of legal issues associated with improper business practices. That doesn't mean this potent financial behemoth isn't still a promising investment.

The stock trades around $15.60, flat on the year to date but up about 6% over the last 52 weeks.

Love it or hate it, the second-biggest U.S. financial firm has been receiving plenty of unwanted media coverage starting in April with the federal judge ordering the bank to pay nearly $1.3 billion in penalties for its role in defrauding Fannie Mae and Freddie Mac into buying thousands of doomed mortgages.

Since I don't subscribe to the notion that any kind of publicity is good publicity, it's also disturbing that Bank of America's Merrill Lynch division keeps showing up in stories about "dark pools." These are secretive operations that allow investors to trade shares anonymously so their activities are hidden from their competitors.

Must Read: Blonde Go-Getter Fined $1 Million in Bank of America Fraud Case

Coming up, Bank of America will soon hear from the Federal Reserve, which has until August 10 to decide if it will allow the bank's plan for a 5-cent dividend increase and a limited share buyback. The bank fared poorly during the Fed's most recent round of financial stress tests.

So why invest in Bank of America? Because when Wall Street learns about Bank of America's continuing campaign to win more depositors plus investors for its Merrill Lynch side by lowering fees, commissions and offering free banking accounts, its share will soar.

It already has an impressive 12.37% trailing 12-month operating margin along with a 10.53% quarterly profit margin. The five-year chart below illustrates how the stock can suddenly surprise investors to the upside. I've included the two margin metrics as key financial indicators.

BAC ChartBAC data by YCharts

When Bank of America shares were trading for around $5 in early 2012, few anticipated the price surging 260% by the first quarter of 2014 to $18.03. Since that March 2014 peak shares are down 13% -- meaning it's time for investors to get ready to buy.

My sense is the Fed will grant BAC permission to give investors both a dividend increase and a better stock buyback.

Back in May I made the case that shares were undervalued at $14.54 and would hit $20 by May 2015. So far that's working out. So I encourage you to buy the dips, enjoy the tiny dividend, and expect upside potential when Bank of America's shareholder plan gets the green light from the Fed.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 86.47%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BAC's net profit margin of 9.28% significantly trails the industry average.
  • BAC, with its decline in revenue, slightly underperformed the industry average of 4.6%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
Marc Courtenay is a financial research analyst and the founder of Advanced Investor Technologies LLC as well as the publisher and editor of

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