Banks have taken a beating since the collapse of the U.S.
These financial institutions quickly became mere shadows of
their past selves as unfettered lending practices, fueled
byspeculation and out-of-control greed, knocked the once-mighty
companies to their knees.
Thecatalyst was the easy availability of mortgages. No longer
did borrowers have to pass rigid standards to qualify for
homeloans . The banks felt protected on two fronts. First, it was
widely believed that thereal estate market truly had noupside
limit. Second, they could get rid of their risk in thefinancial
markets through newly created instruments called mortgage-backed
The banks thought they had nothing to lose. Greed and
competition quickly created an unsustainable situation, and when
real estate stopped climbing in value, the entire house of cards
collapsed. This resulted in the near-collapse of the entire
financial system, requiring the U.S. government to jump in with
Now, four years after the worst of the financial crisis, two
banks are back in a big way, and it's time toprofit again.
:Shares of this banking giant traded as high as a split-adjusted
$551 at the peak of the banking bubble in 2007. The bank
struggled with profits in 2012 but is making positive changes.
Citigroup replaced itsCEO lastyear , and the management team was
These efforts have resulted in such an improvement that the
bank is planning on buying back more than $1 billion worth of
shares. It is projected that Citigroup'searnings will grow 12%
annually during the next three to five years. Thestock currently
trades at 9 times its estimated 2013 earnings of about $4.60 per
share. The stock's downside is its dismaldividend yield of just
0.1% or 4 cents per share.
Technically, the daily price chart indicates a double top in
the $47 range. A breakout close above $48 should trigger a
momentum-based entry. My one-year target price is $57 if the
entry is triggered.
Bank of America (
: This bank has been used and abused for the past several years.
But things are finally looking positive, with shares soaring
nearly 140% since their $5 lows in December 2011.
Not only was Bank of America hit directly by the financial
meltdown, but it purchased the toxic assets of Countrywide
Financial, which only added to its woes. Hit with massive legal
expenses and a nearly $3 billion fine by theFederal National
Mortgage Association (Fannie Mae) , this bank appeared to be
headed for the world of pennystocks .
However, 2012 earnings were close to three times higher than
the previous year's. Shares sell for 12 times predicted 2013
earnings of 99 cents per share, but earnings are expected to grow
19% during the next several years.
Like Citibank, Bank of America yields a dismal 0.3%, making it
not the best pick for yield-hungry investors. But with the worst
behind it, I project this stock to be trading at $22 within the
next 18 months if the buy order is triggered.
Risks to Consider:
I am basing my projections on the continued improvement of
the U.S.economy . I firmly think the worst is behind us, and
things are looking better on a dailybasis . However,
someeconomists remainbearish despite the stock market's
Action to Take -->
I like Citibank and Bank of America as breakout close buy
opportunities. Always use stops and position size properly