Bank of America may be “the single best speculative play” on a resurgent real estate market, Cramer said Friday. And he is convinced the market is bottoming.
How does he know? Just look at California. The epicenter for the bursting housing bubble is seeing a noteworthy turnaround all of sudden.
The state’s existing home prices rose 1.4% in April, The Wall Street Journal reported, the second consecutive monthly increase. But the median price for a home still is down 36.5% from a year ago. More importantly, April’s transaction count – 540,360 – is up 49% from 2008. And inventories have decreased as well. Cramer called this “the definition of the bottom in the real estate cycle.”
California is important because it accounted for about half of the problems contributing to this latest housing decline. That kind of influence plays both ways, though. So if the situation’s improving in the Golden State, the country might not be too far behind.
Cramer likes Bank of America as the play here because home prices don’t matter so much as the rising number of transactions. Between BofA’s mortgage division and Countrywide, acquired in January 2008, the company will make, well, bank meeting the demand for home loans. Bank of American already has the most exposure to California real estate, with 36% of its total residential mortgages located there. Cramer expects that number to go higher. Also, banks now are able to sell their foreclosed homes, and that removes toxic nonperforming loans from their balance sheets.
Even the Merrill Lynch acquisition finally is starting to benefit Bank of America. The necessary charges have been taken, the bad loans are off the books, and John Thain is gone. Now Merrill’s asset management business is shining, and the fees from debt deals are rolling in thanks to the newly unfrozen credit markets. And while Merrill cut 40% of its workforce, the company’s combined pro forma market share has held firm in 2009 versus last year.
Once Bank of America is done selling the last remaining shares from its secondary offering and it starts to repay its borrowed TARP funds, Cramer said, “this one’s off to the races.”
“The time is right,” Cramer said. “The consumer’s feeling better, housing is bottoming, unemployment could be bottoming, and Bank of America is the speculative way” to play it.
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