Is Bank of America Destined to Trade Below $10?

Anyone who's reading this probably knows that Bank of America's share price doubled in 2012, moving from the low point of $5.80 on Jan. 3 to its year high of $11.61 on Dec. 31. The stock is currently trading for $12.27, and hasn't moved below $11 all year.

But for investors who bought in the $5 range and saw it through to where it is now, $10 is a kind of tipping point: a number more important psychologically than anything else, but one no investor still ever wants to see B of A move under.

Here's why B of A stock will likely stay above $10 in the long-term, but why anything much more than that is a long shot.


What a difference a year makes
At the start of 2012, none of the Big Four banks was doing particularly well in terms of share price. Citigroup was trading at $28.33 and Wells Fargo  at $28.43, while JPMorgan Chase began the year at $34.98.

By year's end, Citi was up to $39.56, Wells was up to $34.18, and JPMorgan was at $43.97 -- for respective gains of 39.64%, 20.23%, and 25.70%. For 2012, financials was the best-performing sector of the S&P 500, and with numbers like these, it's not hard to understand why.

But at the beginning of 2012, all of these banks were still reeling particularly hard from the financial crisis. It can be argued they still are, but a year and half has made all the difference. 2012 was a real turning point for investors: that it was OK to start moving money back into the big banks, even if all the issues in the system that had caused the crash had yet to be addressed.

Foolish bottom line
But for right now, I think the market has done everything for B of A that it's going to.

B of A is up only 2.91% year to date, and it's almost May. That hardly puts the superbank on track for stellar gains for 2013. But JPMorgan is already up 9.54% for the year, Wells is up 8.07%, and Citi is up a big 13.5%, putting all of B of A's peers on track for a big year.

I think investors saw B of A emerge from all-out crisis mode at the beginning of 2012 and began to pour their money into it, and rightly so. Though the bank still faces enormous challenges, it was no longer in danger of failing then and isn't today.

As such, I think the superbank's stock is a safe bet to stay above $10 per share, primarily because investors weathered enough challenges in 2012 and even 2013 -- like a $10 billion January settlement with Fannie Mae over bad mortgages -- that if they were going to run because of litigation fears and drive the price back down under $10, they already would have.

But the bank is still so unfocused and so ungainly, and the leadership just doesn't seem to be there, that I don't think it's going to go much farther than where it is right now.

CEO Brian Moynihan is more than competent, but he's no Jamie Dimon, Lloyd Blankfein, or Michael Corbat. I just don't get the feeling Moynihan has any kind of personal vision for the bank. He's a fine caretaker, and he's certainly better than Ken Lewis, but that seems to be about it. Leadership can make all the difference, and I just don't see it at B of A right now.

B of A is off to a slow start to 2013, and while I think it's unlikely investors will have to face the psychologically debilitating effect of seeing $9.99, or worse, next to their beloved superbank's ticker, they shouldn't expect much more. 

Looking for in-depth analysis on Bank of America?
Check out this Motley Fool premium report -- expertly researched and written by top Foolish banking analysts Anand Chokkavelu and Matt Koppenheffer.

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The article Is Bank of America Destined to Trade Below $10? originally appeared on Fool.com.

Fool contributor John Grgurich owns shares of Citigroup and JPMorgan Chase. Follow John's dispatches from the bleeding edge of capitalism on Twitter @TMFGrgurich . The Motley Fool recommends and owns shares of Wells Fargo. It owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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 simply cracking disclosure policy.

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bps163

I love this kind of talk when this happens banks make a 1 to 2 dollar run up and my puts are screaming for a run up, Thanks guys

April 30 2013 at 9:25 PM Report abuse rate up rate down Reply