3 Reasons to Buy Bank of America

 | Jan 02, 2014 | 11:15 AM EST  | Comments
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I know I am talking my book, but I think this Bank of America (BAC) Hold-to-Buy from Citigroup is very important for three reasons.

First, the stock has stalled here even as things have gotten better, which puts investors on pins and needles thinking there must be something wrong we don't know about. I think this upgrade takes that off the table.

Second, rates are going the way banks need them to, especially the 10-year, yet investors still harbor a belief that higher rates are per se bad because they could hurt the mortgage business and have crushed the refi business. We have indeed seen a leveling off of mortgage applications, so that is a realistic fear. But remember, banks make their money off the net interest margins, the difference between the money they pay you and the money that they can invest, either risk free on the Treasury curve or through loaning, especially project loans.

The yield curve/CD spread investment is much more important than the mortgage business because it is considered risk free and therefore has no downside to investors. We know from mortgage lending that there could be considerable downside.

Finally, with a nod to my friend and writing partner Matt Horween, the technicals can really propel this stock at this point. Now I know that the charts shouldn't "matter," but we have become increasingly chart oriented as the charts turned out to be the best predictor of making money in 2013. Given that the stock was appreciably higher even when other bank stocks were bottoming and has since fallen dramatically, this could be a clarion call for technically inclined investors to get long and chew through all of the overhead stock that's been there forever.

Bank of America -- three reasons to buy, no reasons to sell.

And, who knows, maybe the Fed will, at last, let Bank of America start doing some really shareholder friendly things like boosting the dividend and getting even more aggressive about a stock buyback that is so necessary given that share count has more than doubled in the last six years.

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