5 Reasons to Buy Bank of America

It's a risky call but it can't get much worse for this battered bank.
By InvestorPlace ,

By Jeff Reeves of InvestorPlace

NEW YORK (

InvestorPlace

) - There's no shortage of articles offering the

best stock picks

for the new year. But allow me to throw one more on the pile before the ball drops with my recommendation of

Bank of America

(BAC) - Get Report

.

Why BofA? In a nutshell, I don't think things can get much worse for the battered bank.

Admittedly, this is a bit of a risky call, despite BAC rising about 17% in the past month. Bank of America has many problems in many areas, from a backlog of foreclosures to new regulations to Uncle Sam's ownership stake to plain old bad PR. But if you don't want any risk, you simply shouldn't be buying individual stocks in the current volatile market.

There are plenty of reasons to talk yourself out of buying BofA. But here are the fivebig reasons I found that talked me into buying:

How much worse can things get?

Bank of America's five-year return has delivered something close to a 70% loss, and it's off more than 30% from its 2010 high around of $20.

Clearly, Wall Street is painfully aware of the problems facing BAC. Just as I believe too much success is already baked into some overbought tech stocks (that's another story), I believe plenty of failure has been baked into BAC. Frankly, what surprises are there left that would revise Wall Street's negative outlook on this stock any lower?

The 'experts' have targeted 50% gains on average.

Trust me, I'm as skeptical of expert analysts as the next guy. But for what it's worth, out of 26 analysts with targets on BAC stock, every single one has predicted an upside to shares, according to Thomson/First Call. The low target is $13 (about where the stock is now), and the high is $26, with an average of $18. The fact that even the worst forecast on Wall Street is for zero downside is worth noting.

Possible dividend boost in 2011.

According to Bank of America executives, the company's balance sheet is shored up and a dividend is likely. CEO Brian Moynihan hinted on Dec. 7 at a Goldman Sachs conference that a dividend increase was a possibility.

What's more, the

Federal Reserve

seems ready to sign off on increased dividend payments for banks that took TARP cash (the healthy ones only, of course) for the first time since the financial crisis. Not only would a bigger dividend payout be nice for shareholders, but the buying pressure created by income-hungry investors could be doubly fortuitous for BAC stock.

As more investors have chased dividends, news that Bank of America will be delivering a better yield could create a bump in buying pressure.

Government Meddling in BAC Will End Soon

In September, bailed-out

AIG

(AIG) - Get Report

sold its Star Life Insurance Co. and Edison Life Insurance Co. to

Prudential

(PRU) - Get Report

as part of an effort to payback taxpayers.

General Motors

(GM) - Get Report

held an IPO just before Thanksgiving as a way for Uncle Sam to start moving out of the stock and returning the company to private investors. The Treasury Department sold its final stake in

Citigroup

(C) - Get Report

for $10.5 billion in the beginning of December. It's clear the government is eager to get out of its stock takeovers, and Bank of America will be next on the list.

Housing, Lending and the Economy Will Recover Eventually

If you've read this far, I assume that you don't expect to be a subsistence farmer in 2011 using a stack of worthless $20 bills as kindling for your cave fire. If that's your outlook, obviously you shouldn't buy ANY stock but rather stockpile canned goods and buy a firearm as your 2011 investment plan.

But if you're going to buy a stock because you're hopeful about the economy or you think that housing will finally hit bottom in the next few months after a rough two or three years, Bank of America is a good buy. Call me Pollyanna, but I have hope for 2011 -- and that means I have hope for Bank of America's stock.

Full disclosure: To show I'm putting my money where my mouth is, I just purchased BAC at $13.30 on Dec. 30. We'll see in 12 months whether it was a wise move.

To get regular updates on the good, the bad and unexpected in BAC across the next year, visit InvestorPlace.com's

Best Stocks for 2011

buy list. It's free and we'll be tracking 10 stocks in total for all of 2011. Visit us often to see what's new!Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter at

http://twitter.com/JeffReevesIP

.

RELATED ARTICLES:

>>Top Ten Stocks for 2011

>>Forget big banks - This Regional Financial is Set to Surge

>>Your best way to profit from the 2011 merger boom

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Loading ...