David Yost, a member of Bank of America Corp (NYSE:BAC)’s Board of Directors, purchased 20,000 shares of stock on April 18th at an average price of $11.51 per share according to a Form 4 filed with the SEC. We track insider purchases because it generally doesn’t make sense for insiders to increase their company-specific risk rather than diversify unless they are confident in the company’s prospects. In fact, studies show that stocks bought by insiders narrowly outperform the market (read our analysis of studies on insider trading). Yost had previously bought 20,000 shares of Bank of America Corp (NYSE:BAC) this past January at a similar price, and 10,000 shares in early November at about $9.50 per share. See a history of insider purchases at Bank of America.
The bank reported considerable improvement in its financials in the first quarter of 2013, with revenue growing 17% versus a year earlier on strength in noninterest income. Lower noninterest expenses and credit loss provisions contributed to an abnormally high percentage increase in earnings. While Bank of America Corp (NYSE:BAC) is up 43% in the last year, it is still trading well below the book value of its equity at a P/B ratio of 0.6, meaning there is at least some case for upside potential on asset value alone (though Bank of America does not have a good reputation compared to some other U.S. banks). Analyst expectations imply a forward P/E of 9, which is certainly interesting in absolute terms but is actually about in line with the bank’s peers including some which investors might find more reliable.
Bank of America Corp (NYSE:BAC) had been one of the most popular financial stocks among hedge funds in the fourth quarter of 2012 (find more financial stocks hedge funds loved), according to the database of quarterly 13F filings from hedge funds and other notable investors we maintain to help us develop investing strategies (the most popular small cap stocks among hedge funds, for example, earn an average excess return of 18 percentage points per year). Out of the major shareholders of Bank of America Corp (NYSE:BAC), billionaire Kerr Neilson’s Platinum Asset Management reported ownership of over 37 million shares at the end of December (check out Platinum’s stock picks). Moore Global, managed by billionaire Louis Bacon, initiated a position of almost 12 million shares (research more stocks Bacon was buying).
Bank of America Corp (NYSE:BAC)’s peers include Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Morgan Stanley (NYSE:MS). Wells Fargo and JPMorgan Chase trade at 8 to 10 times their trailing earnings, as these companies have not been struggling as much as the others over the past several quarters. This places them in value territory from our perspective, and we’d note that financially they have been doing well; JPMorgan Chase is also trading just a bit below the book value of its equity to boot. They both look like interesting targets for further research. Citigroup Inc (NYSE:C) also carries a considerable discount to book value, with a P/B ratio of 0.7, and like Bank of America it is expected to improve its earnings over the next couple of years to the point where it pulls even with those two stronger megabanks. Its revenue was up 10% in its most recent quarter compared to the same period in the previous year, and might be worth watching. Morgan Stanley (NYSE:MS), whose wealth management business competes with Bank of America’s Merrill Lynch unit, has also been recovering. Consensus earnings estimates for 2014 place it at 8 times forward earnings estimates, even with this peer group.
This insider purchase is worth noting, particularly with the same individual having bought stock recently, and we certainly don’t think it’s a good idea to be short Bank of America. However, we aren’t sure that the bank is a better value than some of its peers, particularly with JPMorgan Chase & Co. (NYSE:JPM) as cheap as it is relative to both that bank’s book value and trailing earnings. That company or Wells Fargo & Co (NYSE:WFC) look more worthy of further research to us at this time.
Disclosure: I own no shares of any stocks mentioned in this article.
