Analyst Richard X. Bove of Rochdale Research thinks Bank of America is "massively undervalued" and he believes investors should be willing to buy its stock if they are in it for the long haul.
Bove is underweighting bank stocks for many reasons, he said in a Monday note, but for "investors willing to accept less than desirable returns near-term, Bank of America is a very, very undervalued stock."
Even under the "bleakest of scenarios Bank of America’s book value will rise" in the next three years, he said. The bank's cashlike items will also rise. "The stock is selling at a discount to both," he wrote. "This may not be relevant to today’s investors who are burdened with so many issues to fear. However, at some point the market will adjust to the company’s real values."
The bearish view on the company "is derived from a belief that losses in the loan portfolio will cause book value to plummet," he said. "Hopefully, it is understood that writedowns will not reduce the bank’s cash position. Writedowns are non-cash charges. My estimate is that Bank of America will have pretax pre-provision earnings of $131 billion in aggregate for the three years 2011, 2012, and 2013 together."
He said the bank's tangible book value is "100 percent cash and cash-like instruments" and he expects that book value will rise in the next three years.
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Rochdale Securities does not make a market in equity securities and does not engage in investment banking. Its principals may own shares but do not own 1 percent or more of any class of common equity securities of any subject company.