A short-term Fiscal Cliff trade.
With his firm's Washington Research Bureau saying that there is "a 65% probability that the U.S. economy is pushed over several of the initial Fiscal Cliffs," because of all the moving parts being discussed by President Obama and leaders in Congress, Guggenheim Securities analyst Marty Mosby on Monday made a " tactical trading sell" call on Bank of America, saying that the company's shares "could trade below $8 over the next three months if it becomes apparent that the U.S. economy is about to be pushed over several of the upcoming Fiscal Cliffs." For long-term investors, Mosby has a 12-month rating of "Buy" for Bank of America, with a "$12 price target. Bank of America's shares pulled back by a nickel to close at $9.85 Friday. The shares have now returned 78% year-to-date, following a 58% drop in 2011. The shares trade for 0.7 times their reported Sept. 30 tangible book value of $13.48, and for 10 times the consensus 2013 EPS estimate of 97 cents a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $1.27.
Looking for a high payout ratio following stress tests.
Comerica's shares have now returned 17% year-to-date, following a 38% decline during 2011. The shares trade for 0.9 times book value, according to Thomson Reuters Financial Insight, and for 11 times the consensus 2013 EPS estimate of $2.63. The consensus 2014 EPS estimate is $2.77. Based on a quarterly payout of 15 cents Comerica's shares have a dividend yield of 2.01%. Following the last round of Federal Reserve stress tests in March, the company was approved to repurchase up to $375 million worth of common shares, through the first quarter of 2013. Including shares repurchased as part of deferred compensation plans, Comerica bought back $215.5 million worth of shares during the first three quarters of 2012. Bank of America Merrill Lynch analyst Erika Penala on Monday estimated that following the next round of stress tests, Comerica will be approved to raise the quarterly dividend by a penny and buy back another $321 million worth of shares, which would give the company a combined payout ratio of 101% during 2013. While being approved to pay out more of its earnings would certainly signal regulators' comfort with the company's capital strength, Bank of America Merrill Lynch still has a "Neutral" rating on Comerica. Penala said that "while buying back stock in a
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