An Insider Bought $230,000 Worth of Bank of America

Bank of America has the heaviest discount to the book value of its equity among the major U.S. banks, though Citigroup Inc. (NYSE:C) and PNC Financial Services (NYSE:PNC) boast P/B ratios of 0.6 and 0.7 respectively. Forward P/E multiples (for 2014) at these two banks are 8 and 9 respectively, however, so Bank of America does not have any particular advantage in terms of value unless it turns out to beat analyst expectations more than these two companies do. In addition, net income has actually been up at Citi and PNC from a year ago, and so they look like better places to start looking for a cheap bank.

JPMorgan Chase & Co. (NYSE:JPM) is priced right at its book value, while Wells Fargo & Company (NYSE:WFC) actually trades at a moderate premium. This is because investors have more trust in these banks’ assets, and also because their recent financial performance has been superior to that at Bank of America. Earnings growth in the fourth quarter of 2012 versus a year earlier was at least 20% in each case, and trailing earnings multiples area in the 9-10 range with little- but still positive- growth expected in the future. In book terms JPMorgan Chase and Wells Fargo are valued at a premium to Citi and PNC, but they are still cheap and if an investor has more confidence in these banks they may be better buys.

We wouldn’t say that Bank of America is necessarily overvalued, but we’d advise investors to steer clear of this insider purchase anyway. The company’s peers seem to be about as cheap- and actually there is no gap at all when we value them using earnings rather than asset-based metrics- and their businesses have clearly been doing better recently. Any other big American bank seems to be a better prospect for value.

Disclosure: I own no shares in any stocks mentioned in this article.