Bank of America Is Undervalued, Whitney Says

Meredith Whitney says among the financial stocks, Bank of America is the one to own after the stress test results last week.

Shares of Bank of America (BAC) were essentially unchanged Monday, at $12.65, but popped after hours by 9 cents, or 0.72%, following Whitney’s comments. Shares of Citigroup (C) fell 2%, while shares of JPMorgan (JPM) fell 1%. The Dow Jones Industrial Average was off 0.43% on Monday, while financials fell 0.83%.

On CNBC, Whitney said,

“Bank of America was already one of the most undervalued names going into the stress tests. What’s amazing about this is very rarely do these banks have value and momentum, and this has both of those. The stress test was a huge catalyst for this name. It has been this huge stealth deliverer. They announced cost-cutting measures in 2010. No bank has taken the kind of [cost cutting] measures it has taken. And it takes two years to implement those. It can easily go to $15. And over the next two years, into the $20s. It’s all cost-cutting, it’s all operating leverage. I don’ t have a lot of growth expectations for the big banks in general.”

On JPMorgan: “Not a stock I”m recommending. They’ve come a long way, not as much cost cutting to do. Just because they’re in a lot better shape than other banks, not as much upside from my point of view.” When asked about recent JPMorgan hearings, Whitney said that “reminded me of Goldman Sachs (GS) when they got into trouble. And it will probably take them [JPM] a long time to get out of it, like it took Goldman.”

Financials were a mixed bag on Monday, with some banks trading lower on news that Cyprus plans to impose a tax on bank deposits. KBW recommends a defensive position, with credit card issuers among its favored names, as we noted in a post on financials earlier today.

Whitney in December issued positive calls on Bank of America, Citi and Discover Financial Services (DFS) – a Reuters story here.

Read colleagues Michael Aneiro’s post from last year on Whitney and municipal bonds here and Sam Mamudi on Whitney’s BAC advice: might have been nice a bit earlier.