Sure, the stock has more than quadrupled from its early 2009 lows. But nearly all of those gains happened in the second and third quarters of 2009.\u00a0 Bank of America has drifted lower in the years that have followed, and its current stock price is down by nearly a quarter since early 2010.<\/p>\n
The reasons for lack of investor enthusiasm are well known.\u00a0 Banks were at the center of the 2008-2009 crisis, and Bank of America\u2019s mortgage portfolio was one of the largest and weakest of any major bank and the most at risk for claims from distressed borrowers.\u00a0 New curbs on proprietary trading and higher capital requirements would be a drag on future earnings growth.\u00a0 And higher interest rates would crimp demand for new loans.<\/p>\n But at what price are all of these negatives baked in?<\/p>\n Let\u2019s take a look at the numbers.\u00a0 Bank of America is trading for about 10 times earnings and 0.68 times book value.\u00a0 Using the more stringent metric of price-to-tangible book<\/a>, which excludes intangible assets such as goodwill, we get a multiple of 1.1 times.<\/p>\n This means that Bank of America is worth nearly as much dead as alive and that investors are assigning virtually no value at all to the bank\u2019s continuing operations.\u00a0 That seems a little harsh given the progress the bank has made in cleaning up its loan book and given the nationwide improvement in home prices.\u00a0 The S&P Case-Shiller 20-City Home Price Index<\/a> is up about 12% over the past 12 months alone.<\/p>\n And what about the bank\u2019s outlook?\u00a0 Bank of America isn\u2019t due to report its third-quarter results until the 16th<\/sup> of this month, but we can look to the last release for guidance.<\/p>\n Bank of America\u2019s net charge-offs and provisions for credit losses continue to trend down, from $3.6 billion and $1.8 billion, respectively, in the second quarter of 2012 to $2.1 billion and $1.2 billion in the second quarter of 2013. The number of mortgage loans 60+ days delinquent has been cut by more than half in the past year, from 1.1 million loans in the second quarter of 2012 to 492,000 last quarter.\u00a0 Management expects this to fall to 375,000 by year end.<\/p>\n Overall leverage continues to shrink.\u00a0 And the bank\u2019s Basel III tier 1 capital ratio<\/a>\u2014at 9.6% as of last quarter\u2014ranks Bank of America ahead of JPMorgan <\/b>(<\/span>JPM<\/a>)<\/span>, U.S. Bancorp<\/b> (<\/span>USB<\/a>)<\/span>, and even Warren Buffett<\/a>\u2019s favorite, Wells Fargo<\/b> (<\/span>WFC<\/a>)<\/span>.<\/p>\n All of this points to a bank that, while still a mess, is cleaning up its act in a hurry.<\/b>\u00a0 Meanwhile, Bank of America is showing modest growth in its consumer credit card and auto loan businesses, and its client brokerage assets are up 17% year over year.<\/p>\n With all of this said, what is Bank of America worth?<\/p>\n In the eight years preceding the crisis, shares fetched 2-5 times tangible book value.\u00a0 Given the bank\u2019s diminished earnings potential in these more sober of days, I would use the lower end of that range as the target.\u00a0 A price-to-tangible-book ratio of 1.5 to 2.0 would put Bank of America\u2019s stock price at $18.90 to $25.20, giving an upside of 36%-81% from current prices.<\/b><\/p>\n Mohnish Pabrai<\/a> and Bruce Berkowitz<\/a> would appear to find value in the stock.\u00a0 Pabrai\u2014a respected value investor known for making concentrated bets\u2014has 22.9% of his funds invested in Bank of America.\u00a0 Berkowitz, manager of the Fairholm Fund and another respected value investor with a reputation for making large, concentrated bets, has 16.9% of his funds invested in Bank of America.<\/p>\n It may not be pretty.\u00a0 But Bank of America is dirt cheap, and it is the largest single holding of two well-respected value investors with phenomenal long-term track records.<\/p>\n Charles Lewis Sizemore, CFA, is the editor of the\u00a0Sizemore Investment Letter<\/a>\u00a0and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he had no position in any stock mentioned.\u00a0Click here<\/a>\u00a0to learn about his top 5 global investing trends and get your copy of \u201cThe Top 5 Million Dollar Trends of 2013.\u201d\u00a0 This article first appeared on\u00a0<\/a>MarketWatch<\/a>.<\/em><\/p>\n This article first appeared on Sizemore Insights as Is Bank of America Worth More Dead than Alive?<\/a><\/p>\n![\"BAC\"](\"http:\/\/charlessizemore.com\/wp-content\/uploads\/2013\/10\/BAC.gif\")
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