Friday, July 24, 2009

Headscratcher from Standpoint Research (BAC)

AlphaNinja - Standpoint Research initiated coverage of Bank of America (BAC) this morning.

From Briefing:

Standpoint Research initiates BAC with a Hold and price target of $18 saying although there is still some uncertainty surrounding this stock, at 1X tangible book value, the market seems to have discounted a worst-case scenario with regards to commercial real estate exposure and other well-known and documented issues. The firm says financials will have difficulty out-performing the market going forward as they de-leverage and ROE drops from double-digit rates to the new norm. In the coming years, these stocks will probably trade as utilities do, based on dividends, low growth and low multiples on earnings. Firm said they recently ran 840 stocks through our 155-variable computer model and BAC ranked a dismal # 727 out of 840. "There are probably better places to invest."

Ummm.... Your price target is 44% above the current stock price. The market has rallied massively, and many people are looking for a short-term pullback, yet there are "better places to invest" than earning 44%???? Nothing at all wrong with Standpoint's research, but typically when your target is 44% higher than the stock, you would rate that a BUY.

1 comment:

  1. The stock hit their price target within two months and backed off there immediately, looks to me like they nailed it spot on, no? Their target was not short-term and it carried more than average risk. Just because a stock has 44% upside doesn't mean it is a "Buy" recommendation ... the risk may not have justified the reward.