The Market's Up and B of A Is Down: What's Up With That?

The Dow Jones  is up today. So is the S&P 500 . But Bank of America ? It took a dive, shedding nearly 5% on the day.

What the heck is going on?

The driver behind the drop appears to be the downgrade from Moshe Orenbuch. The Credit Suisse  analyst took the stock down a rung from outperform to hold, essentially arguing that the stock's gains have outrun the company's progress and priced in more improvement than the CS team is expecting over the "near to intermediate-term."


Is Orenbuch and crew on point here? Perhaps. B of A's stock did double last year, and a higher price means lower potential returns for investors. So whether we're calling B of A's stock an "outperform" or a "hold," one thing for sure is that investors can expect much lower returns than they could just a year ago.

Looking ahead, though, the stock is still trading at a 10% discount to tangible book value. In the years before the credit crisis, B of A traded at a multiple of its tangible book value -- in 2006 that multiple was more than 4. It'd be nuts to expect it to snag a multiple anywhere near that today. However, to expect it to further close the gap on JPMorgan Chase , with a price-to-tangible book value multiple of 1.24, and Wells Fargo , with a P/TBV of 1.67, isn't quite as crazy.

Further, when an analyst is talking about the "near to intermediate term," that often translates to "over the next year." That's pretty typical for Wall Street views, but Foolish investors tend to hold a longer-term perspective. Shifting to a longer view, I see a lot more opportunity for optimism -- think about a day when major, crisis-era settlements are a thing of the past and Project BAC has had more of a chance to slim down Bank of America's costs.

Does today's drop provide a good opportunity to buy? Before you take that plunge, I invite you to take a closer look at Bank of America's big picture in our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.

The article The Market's Up and B of A Is Down: What's Up With That? originally appeared on Fool.com.

Matt Koppenheffer owns shares of Bank of America. The Motley Fool recommends Wells Fargo and owns shares of Bank of America, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Investing in Real Estate

Learn the basics of investing in real estate.

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
bps163

The FAT CAT's know that BAC is ready to double or even triple in value and they want in fast. So they will say and do anything to get there cut before it takes off. It's all about "Jobs" and the "Housing" and BAC is holding a VARY BIG STACK of those cards that Obama needs to move.

January 09 2013 at 9:41 PM Report abuse rate up rate down Reply