From Shares to 15 Times Leverage: Bank of America Corp (BAC)

After collapsing in value during the recession, Bank of America Corp (NYSE:BAC) has been given a front row seat to the financial meltdown. But while BofA has managed to recover some lost ground, shares still have lagged the Dow Jones Industrial Average as the index hit a new record high. With a rebuilding housing market, settlement of many outstanding lawsuits, and the possibility of a stronger economy to come, many investors are looking for new ways to go long on Bank of America. Not to worry, BofA has three different mid to high risk options for the BofA bull.

Medium Risk: Bank of America Stock

Since 2007, Bank of America Corp (NYSE:BAC) shares have taken quite a beating. After topping $50 per share in late 2006, BofA shares fell back through the $50 level in early 2007. Since then it has not seen anywhere near that level again. Shares currently change hands in the mid-$11 range and have remained under $13 for over a year. This has left the question in many investors’ minds: what’s keeping BofA shares down?

Despite a recovery from the depths of the recession, BofA isn’t out of the woods yet. Since swimming in murky financial waters itself, BofA picked up Countrywide Financial for a bargain basement price–or so it thought. Bank of America Corp (NYSE:BAC) not only acquired the assets of Countrywide but also the mortgage lender’s blizzard of upcoming lawsuits. A Google Inc (NASDAQ:GOOG) search using the terms “Bank of America” and “lawsuit” turns up over 4.5 million results, and digging into those results, investors will discover BofA has been sued by everyone from Fannie and Freddie to the mega insurer American International Group Inc (NYSE:AIG) for the bank’s actions leading up to the financial crisis. Although BofA CEO Brian Moynihan remains confident in BofA’s outlook regarding litigation issues, investors need to keep the risks associated with current and future lawsuits in mind when considering Bank of America Corp (NYSE:BAC) shares.

However, things aren’t all negatives at Bank of America. The bank has attracted a multi-billion dollar investment from famed investor Warren Buffett. Of course he got a much better deal than any average investor could. Why? Because he made a $5 billion investment, and he is Warren Buffett. A name like his adds prestige to any company, and Bank of America Corp (NYSE:BAC) was glad to have “free” use of his name. But Buffett continues to hold his BofA investment (which he is well in the black, by the way), meaning he must still see the bank as a good investment.

Why might Buffett see BofA as a good investment? One possible reason is a steep discount to book value. Closing at $11.55 on March 5, BofA shares are well below their book value of $21.98, and even below their tangible book value of $14.33. While questions still linger about how much of this book value is worth what Bank of America Corp (NYSE:BAC) says it is, the investment from Buffett is a sign that the bank still has a strong foundation and should be able to weather near term potential threats.

Mid to High Risk: Bank of America Class A Warrants (NYSE:BAC-AW)

For the more aggressive BofA investor, the guys who brought you TARP have brought you another BofA investment option. BofA warrants can trace their origin back to the bank bailout terms when they were issued to the U.S. government as part of the terms to receive taxpayer dollars. Yet, BofA did not want the stigma of being even partially owned by Uncle Sam, and Uncle Sam did not want the stigma of partially owning Bank of America Corp (NYSE:BAC). So the BofA warrants were auctioned by the Treasury ,and now typical investors have access to these long dated warrants.