Buckingham's Banking Bets for Value Investors

Focus: FINANCIALS

John Buckingham Image John Buckingham Editor, The Prudent Speculator

While results were better than expected, the bottom line was impacted by a higher frequency of property losses than forecast, but fee income related to capital partners was much better than planned.

Axis has suspended share repurchases until 2018 as it recently closed on the acquisition of Aviabel, a European specialty aviation reinsurer, and announced an accretive offer to acquire Novae Group PLC, a diversified specialty reinsurer operating through Lloyd’s of London. Long a rumored buyout candidate itself, AXS currently yields 2.4% and trades near book value.

Bank of America (BAC)

Bank of America is a global financial giant, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services.

In the U.S., BAC serves 47 million customers via 4,600 retail financial centers, 15,900 ATMs, and online banking services with 34 million active users, including 23 million active mobile users.

With many of the problems of the past decade seemingly in the rear-view mirror, BAC has numerous opportunities to capitalize, from its large deposit base and consumer lending franchise to its “thundering herd” of Merrill Lynch’s financial advisors and wealth managers.

We like that credit quality improved in the latest quarter, which also saw EPS top analyst projections. With the shares trading for just 12 times estimated earnings, and the bottom line likely to benefit from higher interest rates, we think BAC is very attractive.

The Federal Reserve in June approved the bank’s Comprehensive Capital Analysis and Review plan, with the company since announcing a 60% hike in its quarterly dividend to $0.12 per share and the buyback of $12 billion in common stock by June 2018.

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