Bank of America: A good bargain?

It is brutal for bank stocks in the past few weeks. Every one has been down and a lot! Just take look at the Financials Select Sector Fund (XLF), an ETF tracking all the major US bank stocks. Since its peak around mid-Feb, it has been moving down for over 11%. The big banks such Citigroup and Bank of America (BAC) have done even worse. I guess you don't need me to tell you how ugly the economic news is out there. Regardless how you want to slice it, it is just awful and wretched. The most horrible part is probably the falling housing market, which seems never ending and will likely continue for a long time. This will translate into further losses on the balance sheets for banks.

While the situation for banks is indeed very dreadful, my contrarian nature tells me this is likely overdone in terms of the extent of their stock drops. I think the most, if not all, of the problems facing the banks have already been priced in. These are the banks which have huge amount of concrete assets in hands, which won't simply disappear due to financial problems. As I have discussed in the past for Citigroup, when the stock price drops below its tangible book value, it is a good bargain for investment. Tangible assets are something which can be "touched", i.e. you can in theory sell them for money back, such as cash, inventory, or buildings etc. According to the latest balance sheet for Bank of America, its current tangible book value has been improved to $13.21 per share. However, BAC is currently trading at about $11.30 per share, nearly a 15% discount to its tangible book value. I think BAC is a good bargain at this depressed price and I'm in. Of course, I wanted other traders to pay me to buy at an absurdly lower price, $7.5 per share!