Alright, so we just witnessed the Federal Reserve dropping BOTH key rates by 50 basis points this afternoon and the stock market is rallying in a huge way. Two stocks that are powerful buys right here, right now are Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC). Why?

Arguably, these are the two best run banks in the United States and they are both trading at ridiculously low multiples. By any measure, these two are cheap and positioned for major movement over the next 6-24 months. Bank of America is trading at $51, only a 10 price-to-earnings multiple of the $4.95 estimate I have for 2007 earnings. The stock pays a dividend right now of $2.56 for a current yield of 5.1%. Bank of America is a coast-to-coast dominant bank with a powerful and complete consumer franchise. With a $5.30 earnings per share estimate for 2008, BAC should trade up to a 13-15 PE multiple putting the price target at $70.

Wells Fargo is trading at $37 for a current PE of 13 times 2007 earnings estimate of $2.75 and 2008 earnings of $3.05 per share. Wells Fargo is a leading consumer-oriented player as well. Wells Fargo has a strong mortgage business, like Bank of America, and although not totally out of the woods yet, the prospects look excellent. Wells Fargo and Bank of America have the financial muscle and the balance sheets to underwrite mortgages and KEEP them on their books. They are not forced to package and sell them like so many small mortgage companies have had to and are now out of the business. BAC and WFC have a higher credit-worthiness requirement of their customers before mortgages are taken on. Yes, both have had to raise their bad debt reserves for the past two quarters and will likely do the same for the third quarter, but they still comfortably achieved earnings expectations.

Continue reading Bank of America (BAC) and Wells Fargo (WFC): Two powerful buys

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This entry was posted on Tuesday, September 18th, 2007 at 4:57 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.