Bank of America Corp. (NYSE:BAC) is an investor darling, at the very least around The Motley Fool. With it being so popular, since I’m officially bearish on it, I try and come back to it occasionally and approach it with a non-judgmental eye.
This is another of those attempts — one that still leaves me ultimately wary of buying shares.
1. Strong share-price performance over the past year
Most bank investors know that Bank of America Corp. returned better than 100% to shareholders for 2012, but the bank has also performed well over the past year, returning 26.49% to its loyal fans. Bear that I am, I can’t seriously argue with either number.
2. Relatively mediocre year-to-date share-price performance
From January 1 of this year, the bank has returned 4.41% to investors already. Solid, though fellow leviathan Citigroup Inc. (NYSE:C) has returned 9.65% year to date, and JPMorgan Chase & Co. (NYSE:JPM) 9.23%. Keep swinging on this metric, Bank of America Corp. (NYSE:BAC).
3. Off-putting valuation
Bank of America Corp.’s price-to-book ratio remains at an off-putting 0.62. It’s off-putting to me, anyway. Rather than telling me the bank is undervalued and a bargain, like it does for many investors, that number is telling me there’s something fundamentally wrong somewhere in the works.
This is a judgment call, of course, and feel free to call me out for being a Citi investor, which has a P/B of 0.73, which isn’t a whole lot higher than Bank of America Corp.’s 0.62.
4. Solid stress-test results
For 2013, Bank of America Corp. (NYSE:BAC) went into the Comprehensive Capital Analysis and Review with an actual Tier 1 common ratio of 11.4% and came out with a stressed minimum of 6.8%. Not bad for a bank that scored 8.7% and 5.7% respectively on the 2012 CCAR.
Even the indefatigable Wells Fargo & Co. (NYSE:WFC) only managed a 2013 9.9% Tier 1 common ratio and 7.0% stressed minimum, so Bank of America Corp. is in good company, here. Bank of America Corp. also came out of the 2013 CCAR with a 6.0% stressed minimum with all proposed capital actions, which means the bank will be able to reward shareholders with $5 billion in share buybacks through the first quarter of 2014.
5. Terrible fourth-quarter earnings
For the fourth quarter of 2012, Bank of America Corp. (NYSE:BAC)’s revenue shrank by a whopping 20.7%, and its net income shrank by an even more whopping 63.2%. None of its other big-four peers even came close to this staggeringly awful performance.