I have $40,000 to gamble on a bank stock, and my broker thinks Bank of America Merrill Lynch at $18 is a "dynamite" stock that can double in three to five years. He thinks the stock could return to the high $40s, where it traded in the early months of 2008. He wants me to buy 2,000 shares and said he will only charge me $300 in commissions. What are your thoughts on Bank of America Merrill Lynch, or do you have any other recommendations? — L.L., Bethlehem, Pa.
Dear L.L.: Bank of America Merrill Lynch ... yeeeechh! A consumer rating poll by MSN-Money recently placed Bank of America Merrill Lynch in its Hall of Shame. While revenues and earnings of BAC ($18.03) should improve, its culture is not good. And you must know if you place all your eggs in a BAC basket and slip, you are very likely to get scrambled.
While I think BAC has fair-to-middling upside potential, a wiser gamble would be to purchase a portfolio of eight different low-priced bank issues that have also fallen far from grace.
I suggest a portfolio of the following. Each is in a recovery mode and could double its price in two to three years:
• CITIGROUP (C — $4.18). This global financial services company has a good franchise.
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• SYNOVUS FINANCIAL (SNV —- $3.45) has a solid franchise in Tennessee, Florida, Georgia, Alabama and South Carolina.
• HUNTINGTON BANKSHARES (HBAN — $5.40) has 600 offices in Ohio, Kentucky, Indiana, Michigan, and West Virginia.
• MARSHALL & ILSLEY (MI — $8.08) conducts its banking business in Wisconsin, Arizona, Florida, Illinois, Minnesota, Missouri, Oklahoma and Nevada.
• FIRST COMMONWEALTH FINANCIAL (FCF — $6.72) operates 114 branches in Pennsylvania.
• PACIFIC CAPITAL BANCORP (PCBC — 1.81) has 48 offices in California.
• KEYCORP (KEY — $8.01) has more than 1,000 branches across the northern United States.
• POPULAR, INC. (BPOP — $2.91) has 300 branches in Puerto Rico.
One thousand shares of each bank will run $39,000, plus $72 in commission if purchase through Charlie Schwab. But if you want to straddle both sides of the fence, buy 500 shares of each of the above, plus 1,000 shares of BAC, and let's see which does better.
