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Gurus Laugh All the Way to This Bank

John Reese

My guru strategies are agog over Bank of America(BAC Quote - Cramer on BAC - Stock Picks). Three give the stock ratings of 90% or more -- it's hard to get a stronger endorsement than that. If you didn't snap up shares when I wrote about the stock last May, I urge you to pay attention now.

The O'Shaughnessy Strategy

My strategy based on the writings of James P. O'Shaughnessy looks for large-cap stocks, and they don't come much larger than BofA's $214 billion. BofA's cash flow per share of $4.56 dwarfs the market mean of 32 cents.

BofA has 4 billion shares outstanding, far above the market average of 633 million shares.

BofA's trailing 12-month sales are $58.6 billion, more than three times the S&P 500's mean of $17.7 billion and double the strategy's minimum multiple of 1.5.

BofA has a dividend yield of 4.3%, which puts it over the final hurdle -- it's among the 50 companies with the highest dividend yields that passed the first four screens.

The Lynch Strategy

My strategy based on the investment approach of Peter Lynch is also laughing all the way to this bank. BofA's EPS growth rate is 13.7%, based on the average of its three-, four- and five-year EPS growth rates, which earns it the Lynchian title of "true stalwart." True stalwarts can gain 30% to 50% in value over a two-year period if they can be purchased at an attractive price based on the P/E-to-growth ratio.

BofA's yield-adjusted P/E/G ratio is 0.63, well below the strategy's maximum of 1.0. Also required for a stalwart company is a positive EPS; BofA's is $4.04.

BofA's equity amounts to 8% of assets, which clears the strategy's minimum of 5% for financial services companies. The final yardstick for the Lynch strategy is return on assets, which measures a bank's profitability. BofA's ROA is 1.37%, north of the minimum of 1%.

The Neff Strategy

My strategy based on the research of John Neff screens among noncyclical companies like BofA for those with P/E ratios 40% to 60% below the market average. BofA's P/E of 11.40 fits nicely within the acceptable range of 9.20 to 13.80.

For dividend payers like BofA, the Neff strategy likes to see earnings growth between 7% and 20%; as we saw above, BofA's is 13.7%.

Its strong past growth is complemented by consensus future growth estimates of 7.4% for the current year and 9% a year for the next three to five, well above the strategy's minimum of 6% for dividend-paying stocks.

This methodology requires that earnings growth be fueled by a corresponding growth in sales greater than 7%. The average of BofA's three-, four- and five-year historical sales growth rates is 13.2%.

The ratio of BofA's total return (historical EPS growth rate plus yield) to its P/E is 1.6, which is more than double the industry average of 0.64, as the strategy requires.

BofA is a star performer. Some analysts think that within the next year or two, it will overtake Citigroup (C Quote - Cramer on C - Stock Picks) to become the country's most profitable financial services company. It has a history of making acquisitions and doing well with them (FleetBoston is the most recent example).

Three guru strategies think this is a good place to deposit your money. I couldn't agree more.