Bank of America stock dip is America's Investment Opportunity
Bank of America Corporation (Public, NYSE:BAC) shares are down 8% in the past 5 days. They are the Juggernaut of the Banking Industry and if you think they won't come back, they'll just smash down your wall and put up a BofA ATM in your house. The StockMasters are all gitty about this dip in BAC, so what if they Q3 profit fell 32%? Get over it, they are not a worthless Washington Mutual (NYSE:MU) per say, they are America's bank and one of the world's largest financial institutions with a $215 Billion market cap.
The Peridot Capitalist, Mr. Chad Brand (Fellow WallStNewsletters.com and Full Monte Contributor) thought Bank of America (BAC) stock at $47 was attractive with a 5.4% dividend yield. The shares moved above $52 since his post, but today are falling back sharply, to $48 each, after the company posted poor third quarter results, just like every other bank has thus far. The dividend now stands at 5.3%, and Chad thinks it is very safe.
If you want to generate even more income on this trade, you could buy the stock to collect the dividend and any capital appreciation, while simultaneously selling out of the money call options on the shares to collect more cash. For example, the May 2008 52.5 calls are selling for about $1.75 each right now. Buying the stock and selling those calls would result in a breakeven point of ~$45 per share over the next 7 months or so. Conversely, your upside would be up to $52.50 on BAC stock, plus dividends and option premiums of around $3 per share (up to 15% in total gains).
Folks, now that BofA has been hit by Wall Street and is $2 above their 52-week low, it's the perfect entry point and in a few weeks it could get even lower. But there isn't a analyst alive that doesn't think Bank of America will return to greatness, its just a matter of time. There isn't a mutual fund or low risk stock out there that will give you a better return in 12 months than damaged shares of BAC.
Bank of America's profit fell short of Wall Street expectations and the CEO isn't trying to fool anyone. "While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third quarter performance," Bank of America chairman and chief executive officer Kenneth Lewis said
The bank unveiled earnings per share of 82 cents. Wall Street had anticipated earnings per share of 1.05 dollars. Revenues moderated 12 percent to 16.3 billion dollars during the July-September period from the third quarter of 2006.
Fellow Masters, wait for a new 52-week low if you aren't convinced, but BofA will comeback.
Article by Ted Gottsegen
Contributor at TheStockMasters.com
Disclaimer: The Author does not hold any positions or shares in the securities mentioned in this publication nor does he stuff his shorts.
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