Librarian Capital's Monthly Ranked Top Buys - January 2023 (Part II)

(Substack Exclusive) Portfolio Strategy

This is Part II of this month’s edition, following Part I published yesterday.

After the first 5 high-quality stocks, our next 5 picks include businesses with more mixed qualities, including two former multi-year compounders that had seen their share prices collapsed in 2022.

6.     Bank of America

Bank of America (BAC US) is our #6 pick. We believe investors can potentially make an 80% gain by 2025 year-end – the stock’s effective 10x P/E is worth just under 10% in returns each year (through both dividends and buybacks accelerating EPS growth), and the P/E re-rating to 13.5x is worth approximately 40%.

We rank BAC behind Admiral primarily because bank balance sheets are less transparent and carry higher risks. Also, while BAC’s P/E multiple is lower, its EPS growth is also likely to be lower and more capital-intensive.

Large U.S. banks such as BAC have good resilience and growth thanks to their combination of strong retail and wholesale franchises. Their large U.S. retail deposit bases pr…