Wednesday, January 23, 2013

Theoretical Price on the Bank Stocks

I did the Ohlson Calculation on the 19 bank stocks.  We're interested in two things:

1) Does the sector on the whole look undervalued? and
2) Which stocks are trading at a discount?

Here is the graph of the premiums and discounts:

Obviously WBK is an aberration - but we aren't interested in the premium ones, we're interested in the discount ones.  Of the five stocks trading at a discount, one of them, MS, isn't showing a correct Ohlson calculation because it had a loss and a weird dividend payout ratio.

So there are four out of 19 stocks at a theoretical discount.  There are some non-US domiciled stocks - four Canadian, one UK and one Swiss that make up the next highest premiums after WBK.  So if we took those five plus WBK and MS, there are four out of 11 trading at a discount, still under half.  I wouldn't consider the sector undervalued.

Given the sector is moderately expensive, I am lukewarm about going further.  I am however, curious about one in particular.   For the record, the stocks that are trading at a discount are C, BAC, COF and IBN.

I'm going to sleep on it and decide tomorrow.  It would be nice to find a really unfashionable sector with a lot of upside potential.

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