Author: Andy Schornack
Covestor models: Financial Services, Market Maven
Disclosure: Long BAC, FMER
The month of August and the first part of September certainly have seen a nice rally in the market. Both my Financial Services and the Market Maven models have seen their respective portfolios rise nicely on the backs of a financial sector rally.
The big mover in both of my models during the past month has been Bank of America (NYSE: BAC). I have mentioned in previous investment reports that BAC is a stock everyone loves to hate. The stock continues to trade at a discount to tangible book value of $13.22 and book value of $20.16 as reported by the company on June 30, 2012.
Here’s the year to date chart of BAC (as of 9/27/12) – click to enlarge:
Google Finance
I continue to be impressed with CEO Brian Moynihan. He is certainly not a flashy chief executive. He has come across as a diligent leader by taking deliberate steps to shrink non-core investments and reduce expenses through the removal of redundant branches, lawsuit settlements, and other costs. The bank has remained a top global and national investment bank while increasing Tier One capital and reducing risk-weighted assets. The path he is pursuing is not a quick one, but the action steps he has taken are starting to show fruits. I look to the stock to continue to move towards tangible book value in the near term.
A transaction I did not anticipate to see happen was a recent release of a stock for stock merger of First Merit (FMER) with Citizen’s Republic Bank (CRBC). The deal is valued at around $915 million will expand FMER into Wisconsin and Michigan and continues to increase FMER’s presence in the Midwest. It is an acquisition I still need to do more research on to determine its long-term implications. FMER has been a stable dividend performer and should continue to demonstrate good capital ratios after the purchase. The stock dropped initially on the news and is a smaller position in my Financial Services model.
I believe each of my models provides an attractive indicative dividend yield as of September 13, 2012, and is invested in companies that, based on my research, provide attractive return probabilities.
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Some investments discussed are held in client accounts as of September 24, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Covestor believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
Some investments discussed in this presentation are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
