What Does Billionaire Ken Fisher See In Bank of America Corp (BAC)?

As we’ve mentioned Citigroup and JPMorgan Chase make good peers for Bank of America. In terms of forward earnings numbers, these two banks trade at small discounts with P/E multiples of 10 and 9 respectively; that figure is actually JPMorgan Chase’s trailing P/E as well as its business is further along the recovery process than the other two banks. Citi is also notable for trading below the book value of its equity, at a P/B of 0.8, while JPMorgan Chase is valued at a small premium. These two banks have also reported their results for last quarter, with earnings rising at least 30% compared to the second quarter of 2012 in each case.

We can also compare Bank of America Corp (NYSE:BAC) to Wells Fargo & Co (NYSE:WFC) and to Morgan Stanley (NYSE:MS), though the latter is more of a pure play investment bank. Wells Fargo is valued at 1.5 times book, reflecting a significant premium placed on its assets, but at least so far the company has been able to monetize them well enough that it is competitive with its peers at a trailing P/E of 12. It has also been improving its bottom line, though to a lesser degree then the three banks we’ve discussed as it had less of a decline to recover from. Morgan Stanley’s profits are low on a trailing basis, but the sell-side believes that it will do well enough over the next year that the forward earnings multiple (of 11) is even with these peers. We would note that the stock’s beta is 2.5, making it even more sensitive to the broader economy than the megabanks (which generally feature betas close to 2, or 1.1 in the case of Wells Fargo).

Fisher already had significant positions in Wells Fargo and JPMorgan Chase, but made this big buy in Bank of America Corp (NYSE:BAC) last quarter as well. The stock has certainly done well recently as costs have been reduced, and still trades at a discount to book, but we think that JPMorgan Chase or Citigroup might be more interesting names among megabanks.

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