Buy Like Buffett

Today, I picked up shares of Bank of America (BAC) at $12.50 and added shares of Wells Fargo at $23.50. I am still a big believer in the long term viability of the financial sector.

Frequent readers of this blog will know that I have been long Bank of America (BAC) since the stock plummeted in 2009. I used the market weakness of yesterday to buy more shares of Bank of America. The stock dropped to $13.04 in the after hours market. I always use weakness to add to my position. Bank earnings may take a hit but I still believe that the stock is trading at a huge discount based on the earnings power of BofA.

US Steel (X) has had a nice bounce since I recommended that investors pick up shares in the mid $30’s at the beginning of the month. Shares are up $7 giving investors an 18% gain.

Back on June 25th I recommended that investors get long Research In Motion (RIMM) when shares hit the $40’s. Shares appear to have bottomed out right at $47. The stock is up to $55 now. Investors should take profits now. I think that Research In Motion is headed lower.

On July 5th I suggested that investors get long Intel (INTC) at $19.48 and General Electric (GE) at $13.97. Shares of Intel have rallied 10.5% to over $21.50. GE has rallied 7.1%. I think that shares of GE have much more upside so I will continue to hold shares of General Electric.

My Current Picks

Bank of America (BAC) is a steal at $13 per share.

Exxon Mobil (XOM) is being given away at under $60.

Apple (AAPL) is worth buying at $245 a share. I would get long Apple shares.

I added more shares of Bank of America (BAC) through my DRIP plan today. Shares of Bank of America trade at just $13.46. The stock has been punished due to its lackluster earnings report and the expected negative impact that financial reform may have on BofA’s earnings. Let’s take a look at the pros and cons of investing in Bank of America.

The negatives for Bank of America are as follows:

1) Credit losses continue to rise as delinquency rates are increasing. Bank of America has tremendous exposure to the real estate market and credit card market.

2) Financial reform is expected to put a cap on interchange rates. This would severely impact debit card fee income.

3) Trading revenues dropped substantially after bolstering the bank in Q1.

4) Much of last quarter’s profitability was due to one time gains such as the sales of bank assets.

So, why should you buy the shares?

Bank of America trades at a discount to book value. The bank’s earnings power is still incredibly strong. Fee income could easily offset any future losses. I expect Bank of America to find new ways of generating fee income by charging for services that used to be free. Increased checking account service charges and increased account activity fees.

The large deposit base gives Bank of America the cheapest form of capital. Bank of America has enough cash reserves to weather any economic downturn.

The downside is already baked into the stock’s price. Analysts have been rushing to downgrade shares of BofA. This is a bank that could easily earn $3 a share in in 5 years. Even if Bank of America only earns $2 per share 3 years from now, the stock still only trades at just 6.5 times earnings.

This is definitely not an overnight play. It may take years for things to shake out at Bank of America. However, I think that patient long term investors will be rewarded when the economy rebounds.

Disclosure: I do own shares of Bank of America.

Photo by: taberandrew

The current market decline has created a great opportunity for value investors. Long term investors do not have to chase speculative growth names because the market has put a lot of large cap U.S. companies on sale. There are a number of household names trading at less than 10 times earnings. Listed below are 4 companies that are selling at a discount to their intrinsic value.

Intel Corporation (INTC)

The recent Dow drop has turned Intel into an accidental high yielder. Intel trades just under 10 times next year’s earnings and has a dividend yield of 3.3%. Intel has a tremendous balance sheet as many tech bellwethers do. Intel has over $16 billion dollars in cash and just $2.5 billion dollars in debt. Intel is a great buy with tremendous free cash flow and an 11.5% earnings growth rate.

Corning (GLW)

Corning is probably the cheapest stock on the list. Shares trade at just 8 times next year’s earnings and the company has a projected growth rate of 11.6% over the next 5 years. Corning has a fortified balance sheet with almost $4 billion in cash and approximately $2 billion dollars in debt. Corning is a cash cow that generates significant operating cash flow. Shares trade just above 1.5 times book value.

Bank of America (BAC)

The nation’s most recognizable bank is trading at just 7 times next year’s earnings estimate. Bank of America has the earnings power to overcome any significant losses in its loan portfolio. The lax financial reform bill shows that the government is still backing the big banks. At just $13.70 a share, Bank of America is a buy.

General Electric (GE)

General Electric has fallen to buy territory again at under $14 a share. Long term investors are getting a great chance to buy a global franchise that trades at just 10 times forward earnings. Even with the dividend cut last year, GE is still yielding almost 3%.

Disclosure: I do own shares of Bank of America and General Electric.

While Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) dominate the headlines, there is one large bank that just slowly continues to grow away from the limelight. That bank is US Bancorp (USB). US Bank took TARP funds just like the other big banks but unlike the other big banks has been able to escape the public backlash.

US Bank has been a longtime Buffet holding because of the company’s great management team and conservative approach to lending. The company’s management is a big reason why the banking giant’s loan portfolio has been outperforming that of its banking peers. It’s non performing loans percentage is much lower than Citigroup and Bank of America. US Bank is the 5th largest bank in the US based on asset size and US Bank has been quietly increasing its size by buying up failed banks over the past year. There have been continuous rumors that US Bancorp may acquire a larger regional bank to expand its operations.

US Bancorp has reported nearly two consecutive years of profitability. Last quarter’s earnings were very solid. USB had earnings of $648 million dollars and an EPS of 34 cents per share. Profitability increased 55% and total deposits increased almost 14%. The encouraging news was that consumer loan delinquency was decelerating even as the bank was increasing its reserves for loan losses. Investors should pay attention to the July 21st earnings release to see how US Bancorp’s sizeable commercial loan portfolio is holding up.

US Bank pays out a much higher dividend than its banking competitors. Shares of US Bancorp are not expensive but are not particularly cheap either at $23. Shares trade at 11 times forward earnings and 1.8 times book value.

I bought shares of Bank of America (BAC) for my long term portfolio at $15.88.

I picked up additional shares of Bank of America (BAC). I still like the banking giant despite potential financial regulations. Earnings may not be as robust as they were previously but banks will be more financially sound. As stated in previous posts, I believe that the Merrill Lynch and Countrywide acquisitions will increase top line earnings over the long run.

I started a position in AK Steel(AKS) at $23.60 for a short term trade.

I picked up additional shares of Bank of America(BAC) at $16.30 for my long term portfolio.

I read an article today about how Bank of America has seen a rise in short interest. Traders are betting against the nation’s largest bank and expecting a decline in price over the short term. While this may be true I think that any weakness in the stock should be looked at as a buying opportunity. I have been buying more Bank of America(BAC) whenever the stock drops to the $15 range. Shorts may temporarily drive the stock lower but I would just look at this as an opportunity to purchase more shares at a cheaper price.

Over the next few quarters Bank of America will be taking billions in write-offs from its home loan portfolio, small business loans and its credit card division. The country’s largest mortgage lender has seen its earnings hurt by foreclosures and loan modifications. Bank of America’ has seen loans in its small business division rise to the high teens. BofA is the nation’s 2nd largest credit issuer and has seen defaults rise to the low teens. 2010 may be a rough year for the banking giant but 2011 and 2012 should be better. The stock trades at 20 times 2010 earnings but just nine times 2011′s estimated earnings. BofA is selling at just 1.3 times tangible book value and should earn close to $3 a share by 2012. While BofA is the riskiest of the three major banks(Bank of America, Wells Fargo, JPMorgan); I believe that the banking giant has the most upside potential as well.