Bank of America Sends Message with $34 Million Lawsuit
Bobby is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Bank of America (NYSE: BAC) is undoubtedly one of the biggest banks in the United States in terms of assets coming second only to JP Morgan Chase (NYSE: JPM). With assets totaling over $2 trillion, bank of America has been faced with a myriad of problems that have seen its annual revenue considerably decrease.
So, why should potential investors invest in this particular stock if its performance has not been all that encouraging? The answer is that bank of America is one of the most profitable stocks that are currently trading although a bit of patience and valor will come in handy for those who decide to purchase the shares. As a result of the fact that the bank of America holds the largest home equity portfolio in the United States, it has been hard hit by the drastic drop in property prices.
Its share price has been constantly changing as clearly shown from the 52 week which shows that the share price has been about $5 and peaking at $13. This has been a test for shareholders as uncertainty has been looming coupled with a great deal of rumor mongering.
Currently the Bank of America share price is about $8 which marks close to a 5% drop from its previous closing – a change that has had many individuals worried. It should be however noted that its chief competitors such as Wells Fargo along with Citigroup and Deutsche Bank have been also experiencing a similar fate.
Looking at Bank of America in terms of market capitalization, it still has a long way to go in order to catch up with its rivals. Wells Fargo leads with a market of about $175 billion followed by JP Morgan Chase which has about $163 billion. Citigroup follows with a market cap of $99 billion while Bank of America trails at $90 billion. Regardless of this fact, Bank of America has posted the largest quarterly revenue growth (year on year) at 27% when compared with J.P Morgan Chase’s 4% and Wells Fargo’s 8%.
This has been some good news to investors such as me as I have begun to see the silver lining on this dark cloud. For those who may be in doubt with regards to whether Bank of America will be able to get out the slump that it is currently in, I would strongly urge them to look at the price to earnings ratio of the stock. Bank of America enjoys a price to earnings ratio of 8.36 while JP Morgan Chase which is far bigger has a P/E of 9. This has been quite encouraging as it means that the expected future growth of the bank of America is quite high.
Recent reports in circulation have stated that bank of America is going to report considerable losses in its profits as a result of having $2 billion in bad home equity in its portfolio. If so, shareholders will undoubtedly be in for a rude shock as this has been slowly turning into the order of the day for this giant conglomerate. Analysts and shareholders alike have been keen to follow the events as none would want to be caught off guard should things get any worse.
Looking at the close of the last year, bank of America has posted a considerable decrease in its annual revenue to about $116 billion which has been characterized by the constant fall in property values. Although many wet blankets may be seeing a bleak future for Bank of America as a result of the fact that many of the home equity loans exceed the value of the mortgage, the current market trends are expected to shift with time which may see it recover.
There is great news for those looking to invest in this stock, however as the price earnings growth for the next year is greater than its competitors. The PEG for Bank of America is about 2 whereas JP Morgan's PEG is about 1.
Bank of America has had no end to the controversy surrounding it as it has faced a number of lawsuits that have had a drastic effect on its current share price. One of the thorns in its side has been a recently challenged settlement that has had key stakeholders a bit surprised. The matter is still however pending as of now.
A recent lawsuit filed against brothers Steven and Michael Roberts has been the subject of many media news reports. Bank of America is suing the two for $34 million as a result of forfeiting a loan repayment of which they were guarantors. I think that this lawsuit has come at the best time as Bank of America tries to send out a strong message to all defaulters that it is ready and willing to go after them in order to consolidate both its annual revenue and the total assets.
Bank of America’s choice to remain quite in the matter shows that it has carried out its due diligence and is confident about winning this particular case which I believe will have renewed shareholders’ confidence in it.
For investors looking for a long term investment that will ultimately be the best value for their money I would strongly advocate for Bank of America. With the expected recovery of the real estate market which holds a great deal of significance for it, Bank of America will no doubt rise from the ashes to reclaim its lost glory and prosperity.
BobbyFisher has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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 disclosure policy.