| Hysteria has hit Bank of America (BAC) shares, and the shorts are piling on and doing everything they can to beat the bank into the ground. It's clear the stock has been heavily attacked by shorts in recent weeks and the volatility has become extreme for a major company. It looks like shorts are feeding the rumour mill and have successfully scared many investors out of the stock. It looks to have reached a level where the easy money has been made by shorts and it's likely the shorts will need a whole lot more than rumours and negative blogs to get the stock to take another leg down. There is no question in my mind that a game is being played by hedge funds and shorts who have used this stock for easy money profits in a fearful market and done everything they can to play on investor emotions. How else did a major U.S. corporation that passed rigid stress tests by the U.S. government with many profitable lines of business, turn into the fear trade of 2011, and see the stock drop by more than half in just 2 months? I believe shorts quickly spotted an opportunity for a "perfect storm" attack on BofA. A sudden convergence of fear from Euro debt issues, Euro bank issues, a major market correction, people talking about Lehman and a big recession, created the perfect opportunity for shorts to play their game on BofA and shake out retail investors near financial crisis lows. I won't be surprised if a couple of months from now BofA is once again talked up by Wall Street and hedge funds as the turnaround story of the year. I expect many of the shorts who started this bear raid to become long the stock and ride it both ways, just as many did about two years ago. Remember the hedge fund managers who made hundreds of millions buying BAC shares just as retail investors gave it away in panic with huge losses? Sounds like history is repeating now. At only $6 per share, it will be much harder for shorts to keep fueling the rumour mill and without anything of substance soon coming from shorts soon, BAC stock could see a "rip your face off" short covering rally. The best way to play the bear raid in this stock is by recognizing this as a classic buy the fear, buy low/sell high opportunity. Furthermore, there are several steps BofA and/or the government could take soon to spark a short covering rally and lift the stock from deeply oversold levels. - Warren Buffet or another key investor could announce a major investment in the stock.
- Ban short selling on financials like they just did in Europe. Many investors believe that caused shorts to attack BAC shares.
- BofA should allow Countrywide to go bankrupt, or at least discuss that with regulators so that the bank could negotiate a loss sharing deal with the U.S. government for all Countrywide loans.
- Have the government announce a real plan to get consumers back into buying houses and get job growth going.
- Announce a settlement on mortgage securities.
- The stock could rally on no news just as it has fallen on no real news from the bank. On Tuesday, we saw most major banks rally along with the markets. If BofA or the financial system was as unhealthy as some shorts would like you to believe, we cannot continue to see any market or bank stock rallies without BofA participating in them. BofA is the largest bank in the U.S. by many measures and if the markets truly believed in the worst case scenarios, other banks and the markets will be in line for a much bigger beating and the market was not telegraphing that by leaping over 300 points recently.
- If needed, go ahead and raise capital with asset sales or a stock sale, the market is already priced that in and the stock would likely rally on news that it has been done.
- A change in management would probably boost the stock price substantially.
Banking expert Dick Bove believes there is no need for BofA to raise capital and says “I don’t see any reason why [Bank of America] is going to have to raise additional capital in the open market if there are no huge losses. If you look at the 28 analysts who make estimates on this company, I’m not aware of any one of them that is arguing that this bank is going to show a loss either next quarter, the quarter after that, or in 2012. If you shrink the balance sheet the way they are, and if you continue to show a profit the way they are, then there’s no reason for the bank to have to go out and raise any capital whatsoever.” Bove goes on to say "If you’re going to break a bank, you’re going to have a run on its deposits. That’s not happening. Exactly the opposite is happening … Deposits are pouring into Bank of America. Or, as in the case of the fourth quarter of 2008, you’ve got to bust a bank by making it repay all of its short-term debt immediately. Bank of America has so much cash on its balance sheet that it can pay back all of its short- term debt, it could pay back a big chunk of its long-term debt and still have excess cash on the balance sheet. You can’t break the bank by driving the price of the stock lower, particularly if the bank is as cash-rich as this one is with deposits pouring in as fast as they are.” See that and a video interview by Dick Bove here. Bank of America is a banking and financial services giant. This bank is facing challenges with mortgages and foreclosures and the stock has recently sold off on concerns of a double dip. But, many smart investors like Trump are buying shares at what looks to be bargain levels. Here are some key points for BAC: - Current share price: $6.30
- The 52 week range is $6.01 to $15.31
- Earnings estimates for 2011: loss of 25 cents per share
- Earnings estimates for 2012: profit of $1.51 per share
- Annual dividend: 4 cents per share which yields .6%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor. |
