Bank of America Corp (BAC), Citigroup Inc. (C): Take the Profits from These Banks to Your Bank

Page 1 of 2

We are not that far removed from the near total collapse of the financial and banking systems in the United States, and the rest of the world as well. In 2008, as the banking system found itself holding a massive amount of poorly collateralized loans on their books, with no hope of recovering the principle, the prospects of having to write down these losses against their capital reserves presented what most believed to be a potentially catastrophic situation, capable of bringing the global financial system to its knees.

Bank of America Corp (NYSE:BAC)

The federal government of the United States injected enough liquidity and monetary support to the overall economy in general, and the banks in particular, to avert the potential crisis to a great extent.

Now that we are a few years away from that event, and the Federal Reserve is still flooding the system with cheap cash and holding short term interest rates at exceptionally low levels, it is time for prudent investors to take advantage of the opportunity to produce safe, consistent returns from the recovery of the banking industry over the next several years. While the industry is currently rife with values, I selected four “household names” to review for investment consideration.

Bank of America Corp (NYSE:BAC)Citigroup Inc. (NYSE:C)JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC) are four names that are probably readily recognized by almost anyone in America today and most people in the developed world. At today’s valuations, I believe all four of these to be worthy of careful consideration as potential investments.

Bank of America could explode higher

With a price to book ratio of only 63%, Bank of America Corp (NYSE:BAC) would have to rise over 50% to simply be trading at par with the liquidation value of its assets. Given that we are not far removed from the 2008/2009 meltdown, it is unlikely that the book value is overstated at this time.

Historically, well run banks can trade for between 1.3 and 1.5 times book value, and still be considered fairly priced. To reach that level of valuation, Bank of America Corp (NYSE:BAC) would have to double in price. Its current price produces a forward P/E of 9.68, which is right in line with its 5-year projected earnings growth rate of 9.8%. It also has a dividend yield of 0.31%.

If a PEG of 1 plus the dividend rate is used as an estimate of value, then Bank of America Corp (NYSE:BAC) should have the ability to provide an annualized return of approximately 10%, while investors await a return to a more reasonable price to book valuation to deliver an exceptional capital gain.

Citigroup is a bargain

Citigroup Inc. (NYSE:C) is another major bank trading below book value at a 74% ratio. This stock would have to rise 35% in order to reach liquidation value, and could double without being considered expensive by industry standards. In addition, while it has a dividend yield of only 0.09%, its payout ratio is a minuscule 2%, leaving a great deal of room for increases.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!