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Posted on RealMoney.com 2/10/09 by Tim Melvin:

One of my search methods is running screens based on various criteria. One of my favorites is S&P 500 stocks trading below book value [...] I ran that screen yesterday and found that the list now approaches 20% of the S&P 500. That's about as long a list as it has been in some time. A lot of the names are banks, and I'm just not ready to approach banks yet. I think that eventually some banks such as BB&T Corporation (BBT) and KeyCorp (KEY) will be make strong purchase candidates, but we need to see how this new plan works (or more to the point, doesn't work) before investing in that sector.

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Hotnuts said:
Be cautious of the banking nationalization rumors and advice that have been going around as well.

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Bank of America Is Going Back to $20
By Jason Schwarz
RealMoney Contributor
2/20/2009 3:22 PM EST 

We are experiencing an overreaction of historic proportions when it comes to the financial sector and specifically Bank of America (BAC) .

In case you haven't noticed, these extreme overreactions are becoming the norm, and a thorough understanding of the reasons for the overreaction is paramount to generating great investment returns in this day and age. The market has gotten Bank of America terribly wrong in the short run as the "cloud of uncertainty" has met with the sea of negativity. Governmental uncertainty and market negativity are the contributing factors for Bank of America plunging below $4 a share.

After riding Apple (AAPL) calls to triple-digit gains in 2007, and then riding oil puts to triple-digit gains in 2008, I am making Bank of America my No. 1 holding for 2009. By next year, this stock will be back to $20 a share. Consider the following:

• The market is running wild on some hyped-up article written in the Financial Times that claims Obama is considering nationalizing the banks. If you actually read the article, you'll notice the anti-American sentiment at the very beginning when it says that "nationalization has long been regarded in the U.S. as a folly of Europeans..." Obama's true feelings on nationalization came out in his ABC interview after Treasury Secretary Tim Geithner's banking speech, when he laughed out loud and said, "Sweden had like five banks. We've got thousands of banks ... managing and overseeing anything of that scale ... wouldn't make sense. And we also have different traditions in this country."
  
  
• Obama understands that the markets will determine his success. He has been very up front in his stance that the success of this financial plan will depend on how the markets respond over the next few months. The idea of killing off current shareholders and taking Bank of America off the market during a nationalization phase is unthinkable.
  
  
• Tim Geithner does not believe in nationalizing the banks either. Mr. Geithner last week said, "Governments are terrible managers of bad assets." He went on to outline a plan that would seek help from the private sector, maintain a market for these toxic assets and increase transparency. Nationalization accomplishes none of these three goals.
  
  
• Any talk of banks would be incomplete without the opinion of the woman who has been right all along, Meredith Whitney. Obviously she is not high on the banks, but in her interview on CNBC yesterday she was very careful not to include Bank of America in her criticisms. She told investors to sell Citigroup (C) but would not mention Bank of America. She is also against nationalization and advocates the use of non-punitive capital to strengthen the system. Maria Bartiromo wanted to get her to say "Sell all the big banks," but she never said it. In fact, she mentioned that JPMorgan Chase (JPM) would be a survivor, as it is well capitalized. I believe Bank of America is in a similar position.
  
  
• Earlier this week, Bank of America actually paid back $402 million in a TARP dividend payment to the U.S. government. If this doesn't show its commitment to repaying taxpayers, I don't know what would. CEO Ken Lewis has mentioned that his company will not need to borrow any more funds, that it is well capitalized and that his company had a good January. The results were led by Countrywide, which he described as being "on fire" because of the boom in refinancings.
  
  
• The Fed will be purchasing $500 billion of mortgage-backed securities over the next six months. Bank of America took one for the team by going through with its purchase of Merrill Lynch. Even when BofA had second thoughts about the deal, it did it at the request of the Fed and the Treasury, which worried about a systematic risk if the deal were to fail. The Fed will be as friendly as possible to Bank of America in this repurchase program.
  
  
• Bank of America will be the undisputed leader of the new economy. I'm excited about being invested in the largest retail brokerage (Merrill Lynch) the largest mortgage lender (Countrywide) and a bank that has been profitable for 17 years in a row, including 2008 (Bank of America).
  
  
• There has also been huge insider buying.

See you at $20.

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Jim G. - On Bank Stocks
By Jeff Bagley
2/20/2009 4:14 PM EST
Jim, I think our subscribers are big boys and girls, and probably know that buying Bank of America entails a substantial amount of risk.

If Jason wants to take advantage of what he considers panic selling in what is a household name, so be it. Heck, I bought some today for my personal account!

I thought he laid out a pretty decent thesis, and Ken Lewis and other BAC directors have been buying substantial amounts of stock all the way down. Perhaps they really believe that tangible book value is about $9.50 a share!

When I first started in this business in 1992, my first assignment was covering the New England banks. It was very similar to whats happening right now -- very frightening. But eventually things worked out very well. People made fortunes by going against the crowd.

Not saying it will end the same way, but BAC is not a bad flier, in my opinion. I view it as a call option, and again, we are all big boys and girls here.

Position: Long BAC

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