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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!