“The fundamentals are screaming buy and the spread quadrupling this year, I think BANK OF AMERICA could rally another 50% and maybe even double. Thanks to a coalition of the ruling buyers who can’t stay away from the stock. That’s why I’ve made BANK OF AMERICA one of my largest positions in my charitable trust portfolio.”–CNBC’s Mad Money 8/4/2009
On last night’s Mad Money on CNBC, Jim Cramer made one of the out-on-a-limb calls that he has become known for and this time it was involving Bank of America (BAC). Cramer is never shy about his opinions, and last night he went on record as saying that he thinks Bank of America is the best way to play the economic recovery. He thinks the fundamentals of the company are strong, and the technicals are suggesting something he referred to as “volatility expansion.” His analysis suggests that the stock has another 50% to 100% run up still left in the tank, so he thinks its not too late to hop on the bank-wagon.
For our two cents at Ockham, we would have to be a little more cautious with Bank of America. Cramer’s thesis revolves around the fact that the economy is on the mend, which we are not necessarily in disagreement over. However, in our eyes, the stock market is undoubtedly overbought right now, and has priced in quite a bit of economic improvement. Buying into the market at such a strenuously overbought condition has not been a strategy that we like to use, rather we would prefer to buy on pull backs not into strength. Also, I will not claim to be a technician, but it seems to me that volatility expansion could also have a tremendous effect to the downside on any pull back.
At Ockham, we have reiterated our Fairly Valued rating on Bank of America and we would expect BofA to trade in the range of $15 to $21 based on our analysis of the fundamentals. 
So, we do think that there is some upside to this stock, but we simply cannot wear the rose-colored glasses that Cramer seems to about some financials. He is willing to overlook the $33 million in fines that Ken Lewis has incurred from the SEC and plans to pass onto the shareholders. Although, Cramer does think Lewis should pay those himself because they were his mistake. Bank of America has put together a strong team around Lewis, which will help the company continue on when he does in fact retire.
One thing that we can certainly agree with Cramer about at this point, there is a prominent “coalition of buyers” that is helping push this stock higher. The stock has broken out of the low teens and could be headed for the low $20’s, but we still have to be more cautious than Cramer on this stock. For a complete recap of Mad Money and slices of all the stocks mentioned (listed on the chart)visit our Mad Money recap page.
