Founder and Managing Director Daniel Lysik of Pratt Capital, LLC, is recommending both Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) as attractive long-term investment opportunities today.
Bank of America has the largest domestic branch network serving one in every two U.S. households…. both companies have taken significant positive action steps over the past couple of years and have resumed a long-term growth trajectory. Both companies have undertaken significant cost-reduction programs, are showing operating efficiency improvements, have significant excess capital to manage any near-term pressures and are still operating well-below their normalized earnings power.
Bank of America’s tangible book value is greater than $15. Outside of excessive investor fear, there is no logical reason why the market price should be at $12, a 20% discount to its liquidation value, especially given that systematic risk has been significantly reduced in the U.S. financial system over the past couple of years.
As the company further moves toward 1% normalized operating efficiency, their earnings power will eventually become greater than $2 per share and their ROE will continue to expand to be greater than 10%. Historically, Bank of America’s price to book has averaged greater than 1.5 times, which would be supportive of a stock price more than two times its current levels.
Citigroup and Bank of America are two of our top-five holdings, and we have been adding to our positions during the recent share-price weakness.
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