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.
