BAC - what's the prognosis?

[VaCollector]

BAC (Bank of America).....one of - if not THE biggest banks in the US....great earnings, profits, P/E, dividends....so WHY is it the stock DOWN 8% since last November?

Hopefully brewer will have had an opportunity to look at this bank too and chime in here with a little analysis....

thanks!

 

[CyclingInvestor]

I follow BAC. I consider it about fairly valued now. P/E is at the lower end of its
historical range, but expected earnings growth (5yr 7.7% yahoo) is also somewhat
below the historic range (about 12%, eyeballing my numbers). However, I consider
an 8% up or down move to be well within the error range of any calculations I make.

 

[brewer12345]

I don't like or closely follow the monster banks. There is no conceivable way anyone can figure out what is going on in their business, and I say that as someone who has done nothing but look at financial institutions for several years. They also have a nasty habit of doing dumb acquisitions and destroying shareholder value. Blech.

I'd much rather own the small and medum sized retail and community banks. They are really cheap these days.

 

[grumpy]

I opened a DRIP in Barnett Bank in 1995. It merged with Nations Bank in 1998 and that merged with B of A. It is now one of my largest holdings. I have a cost basis in these shares of only around $31 per share so I don't sweat an 8% drop. I am quite content to keep collecting the dividend. I only sell shares as part of overall rebalancing.

Grumpy

 

[cute fuzzy bunny]

Whoops, thought it was blood alcohol content.

Nevermind...

Other than banks suck almost as much as retail.

When your best money making ideas in the last decade are charging customers a buck to use a machine instead of a person and adding random fees to peoples accounts in the hopes they wont notice...its not a promising segment for future value.

...and walmart has seemingly found ways to bypass the federal refusal to let them be a bank by leveraging 3rd parties to 'sell' walmart branded banking services. Thats going to cream the banks at the low to mid range customer level...which is where they make a lot of their fees.

 

[VaCollector]

I opened a DRIP in Barnett Bank in 1995. It merged with Nations Bank in 1998 and that merged with B of A. It is now one of my largest holdings. I have a cost basis in these shares of only around $31 per share so I don't sweat an 8% drop. I am quite content to keep collecting the dividend. I only sell shares as part of overall rebalancing.

Grumpy

My grandfather did a similar thing but he bought in or around the early 60's...and my grandmother and mother lived comfortably off of the dividends too....and the growth has been remarkable....at least until it has come into my possession .........and so as it has been with most of my investments....I try to warn friends and family prior to any purchases so that they will have time to bail before I cause the stock to dive

....real good at this stuff, I am not!

I have even bought MORE BAC on the last two dips (including yesterday) only to watch it tumble even further below my purchase points....

As the majority of my holdings are in this stock coupled with my emotional attachment to it, my current plan is to hold on for at least a year before deciding to jump ship and put it elsewhere.

My decision to ER was partially based on the dividends and I have no requirement to sell or rebalance as of yet....although I could very well wish I HAD if the stock keeps tumbling.....so I will TRY to LOOK AWAY and let things happen....

Thanks for your comments!

 

[maddythebeagle]

Other than banks suck almost as much as retail.

It's a good thing Woolworth and Montgomery Ward didnt open banks...

 

[CyclingInvestor]

I'd much rather own the small and medum sized retail and community banks. They
are really cheap these days.

Which of these smaller banks do you consider to be the best run / highest quality
management ?

 

[brewer12345]

Which of these smaller banks do you consider to be the best run / highest quality
management ?

I'm not at liberty to talk about most of them, unfortunately. But the entire world of retail banking has been heavily sold down, so I think yo could just cut to the chase and buy one of the retail bank ETFS that is floating around.

 

[2B]

I opened a DRIP in Barnett Bank in 1995. It merged with Nations Bank in 1998 and that merged with B of A. It is now one of my largest holdings. I have a cost basis in these shares of only around $31 per share so I don't sweat an 8% drop. I am quite content to keep collecting the dividend. I only sell shares as part of overall rebalancing.

Grumpy

I did the same thing but earlier than you did -- 1994. My cost basis is right at $9/share. I've sold most of my BAC to fund 2 of my kids college so BAC is a relatively insignificant portion of my total portfolio.

Since the selling was between 1999 and 2002, I can kick myself for missing the turnaround but that applies to everything else I owned at the time. BAC was becoming my portfolio's 900 lb. gorilla. I was also fully converting to index funds so it had to go anyway.

It's the last individual stock I own and I'm debating whether to use it to fund a charitable trust.

 

[grumpy]

I did the same thing but earlier than you did -- 1994. My cost basis is right at $9/share. I've sold most of my BAC to fund 2 of my kids college so BAC is a relatively insignificant portion of my total portfolio.

Since the selling was between 1999 and 2002, I can kick myself for missing the turnaround but that applies to everything else I owned at the time. BAC was becoming my portfolio's 900 lb. gorilla. I was also fully converting to index funds so it had to go anyway.

It's the last individual stock I own and I'm debating whether to use it to fund a charitable trust.

2b,

I am trying to figure out which one of us maybe erred in calculating cost basis in BAC (I certainly don't rule out that I screwed it up!). I don't see how, if you started investing a year earlier than I did, how our calculated cost bases could be so different. When you sold shares, did you sell the cheapest ones, the most expensive ones or some other strategy? I will go back and revisit my spreadsheet formulas.

Grumpy

 

[2B]

2b,

I am trying to figure out which one of us maybe erred in calculating cost basis in BAC (I certainly don't rule out that I screwed it up!). I don't see how, if you started investing a year earlier than I did, how our calculated cost bases could be so different. When you sold shares, did you sell the cheapest ones, the most expensive ones or some other strategy? I will go back and revisit my spreadsheet formulas.

Grumpy

I had the same thought right after I posted. Mine is right out of Quicken which has been kept updated all these years. Quiken says my cost basis is $9.11. I calculate my 1040 capital gains out of their reports so I'm really in a mess if they aren't right.

One difference I saw was that you had a DRIP. Mine was the right out purchase with no additions. Any sale was at my original cost basis.

In my foggy memory Barnett took off right after I bought it but I doubt it doubled before you bought it the next year. I do believe most of the capital gains came as a result of the Nations Bank acquisition and the BAC acquisition of Nations. Since BAC took over, it's been mostly dividends and little appreciation.

 

[unclemick]

Bank of Boston DRIP back in the 90's - now BAC and one of my bigger holdings in Vanguard Brokerage. Still have one file cabinet of DRIPs left. I'm assuming the longer term merger trend of smaller banks getting swallowed up by bigger ones is still underway and the overall number of banks is falling.

Sooo - buy some small retail banks and wait

Dunno.

heh heh heh

 

[clifp]

I bought BAC last month via a writing a Put on the stock at 52.50.

It has been on the M* Dividend Investors newsletter pick for a long time and is rated 5* by a M* (I put some but not a lot of weight on M* ratings, but more than I do on a brokerage rating.).

I am glad that Brewer says he has no idea how to value this monster because I don't either. I do know that with a yield of 4.5% a zillion year history of raising dividends, coupled with P/E of 10, that baring a major scandal the floor on the company is probably in the ~$40 range. Assuming a very modest dividend growth of 3-4%/year (well below the 12% over the last 5 years) It provides an income stream well over the required 4% + inflation.

 

[Danny]

S&P likes BAC they rate it 5 Stars A Quality Low Risk with a 12 month target of 63.

I have a bit hasn't been very exciting so far.

 

[Danny]

I just checked - I've had it since 6/30/05. Return is 5.84% over 2 years not including divie...not too exciting, but maybe now is the time, although now that I look it is below the downward sloping 50 & 200day MAs, so it will have to overcome that resistance...