The investment thesis for Bank of America has been a strong one over the last two years. Shares of the nation's second largest bank by assets plummeted in 2011 as the magnitude of its legal problems finally began to set in. But now, after putting the vast majority of these concerns in the rearview mirror -- albeit at a cost of tens of billions of dollars -- its stock is finally on the mend. Indeed, following this morning's rally, one could argue that shares of the bank are now fairly valued.
At roughly halfway through the trading session, shares of the lender are up more than 2.1%.
The explanation for today's move is murky at best. The majority of financial news outlets are attributing it to comments made by hedge fund manager David Tepper on CNBC this morning. "I'm definitely bullish," the founder and chief investment officer of Appaloosa Management told the hosts of Squawk Box. He then went on to detail his bullish thesis, which is founded on a nascent economic recovery and the continued monetary easing policies of the Federal Reserve.
His theory can best be described as a win-win scenario. "If the Fed doesn't taper back, we're going to get into this hyper-drive market," Tepper noted. "It's a backwards argument. To keep the markets going up at a steady pace, the Fed has to taper back."
Could this be the reason financial stocks are soaring today? At last check, the KBW Bank Index is higher by 1.4%, and the nation's other large banks are following Bank of America's lead. JPMorgan Chase is higher by 1.3%, Wells Fargo by 1%, and Citigroup by 2%.
It's impossible to answer this question definitively. Maybe Tepper's comments had something to do with it, as he was one of the best performing hedge fund managers last year and, as a result, garners respect among institutional investors and traders. But on the other hand, it seems equally likely that his comments are simply being seized upon as the most tangible and convenient explanation, irrespective of their validity.
The point is this: The performance of bank stocks today is great for anyone who currently owns shares of these lenders. But the more critical thing to keep one's eye on is valuation, a factor that isn't as susceptible to the daily whims and comments of hedge fund traders. And in Bank of America's case, as I noted above, there's reason to believe the share price has finally caught up with its progress on the legal front -- which took a huge step forward last week when the bank settled a multibillion-dollar lawsuit with bond insurer MBIA. For the first time in multiple years, its shares now trade above tangible book value.
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The article Why Bank of America Stock Is Soaring Today originally appeared on Fool.com.
John Maxfield owns shares of Bank of America. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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