Bank of America Corp (BAC), Morgan Stanley (MS), UBS AG (UBS): Cheap, Or Is It?

Page 1 of 2

Bank of America (BAC)Like the host of financial stocks pressured in the wake of the bursting of the real estate bubble, Morgan Stanley (NYSE:MS) has been right there along with the best of them, seeing its market value tumble more than 55% over the last five years.

When looking over how some of the top banks trade, one big thing that stood out to me was the relative cheapness of Morgan Stanley (NYSE:MS). It’s been well talked about how cheap Citigroup Inc. (NYSE:C) and Bank of America Corp (NYSE:BAC) are, but shouldn’t Morgan Stanley get some recognition?

Morgan trades with a price-to-book ratio of only about 0.7, while Citi is at 0.7 and Bank of America Corp (NYSE:BAC) at approximately 0.6. Meanwhile, other top investment banks, including Goldman Sachs Group, Inc. (NYSE:GS) and UBS AG (USA) (NYSE:UBS), trade at 0.9 and about 1.2, respectively.

However, after digging a bit deeper, Morgan Stanley’s sub-par valuation may actually be warranted. And it turns out that perhaps Citi and Bank of America Corp (NYSE:BAC) are the ones that are undervalued. With the turmoil over the last five years, Citi is down 81% and Bank of America down 68% over that time period.

Let’s dig a bit deeper

Not only do I not think Morgan Stanley (NYSE:MS) is cheap, but I think Citigroup Inc. (NYSE:C) offers investors an impressive investment opportunity. From a returns standpoint, Citi appears to be head and shoulders above Morgan Stanley.

Morgan
Stanley
Citi Goldman
Sachs
Bank
of
America
Return
on
investment
0.3% 1.2% 1.4% 0.6%
Return
on
equity
1.8% 4.6% 10.7% 2.1%
Return
on
assets
0.1% 0.5% 0.8% 0.2%

Citigroup Inc. (NYSE:C) also happens to have a solid balance sheet, with a debt-to-capital ratio of 55%, compared to Morgan Stanley (70%), Goldman (68%), UBS (84%) and Bank of America (70%).

Over the last few quarters, Morgan Stanley has been taking initiatives to restructure its operations in order to lower balance-sheet risk and focus on less capital-intense businesses, such as global wealth management. However, the firm still struggles with generating meaningful results for shareholders. Part of the issue is its elevated cost structure.

Operating expenses for 2012 only decreased 2% from 2011. As part of the variant view, Morgan was up more than 5% in recent sessions thanks to an upgrade by SunTrust. The bank moved its rating on Morgan from a “neutral” to a “buy” with a $25 price target, which suggest upside of around 15%.

Banking’s best

Citi cleared the 2013 stress test and also managed to outperform other major banks. Its latest capital plan got the company approved for $1.2 billion worth of share repurchases through the first quarter of 2014. What’s also encouraging is Citi’s diverse business model with a significant portion of the revenue being generated from outside the U.S., operating in over 160 countries.

The company’s long-term goal is to continue shrinking non-core assets and increase its fee-based business. The winding down of Citi Holdings (legacy problem assets) continues to run a positive course, with Citi Holdings’ assets decreasing 31% from the prior-year last quarter and making up only 8% of the bank’s total asset at the end of 2012.

The investment banks

Other notable banks include Goldman Sachs Group, Inc. (NYSE:GS) and UBS. Goldman’s main segment (53% of revenue) consists of its institutional client services, which includes client execution activities related to making markets in credit products, interest rate products, mortgages, currencies and commodities.

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

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

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

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!