1. Select historically "Cheap" or "expensive" markets. - BAC is within uncertainty range level 1. - Financial sector is cheap, relative to tech. BAC has an 18.19 PE ratio vs 585 PE ratio of TSLA. - BAC is neither cheap nor expensive relative to rivals in the financial sector (JPM, GS, by RSI).
2. Develop a critical eye for what is "important" fundamental information to a particular market. - Important fundamental information in the financial sector is the longer-term Treasury yields, which I expect to rise this year. Long inflation. - Macro trend in Quad 2, excess capital generated will be used to buy back shares. Get (1) neutral, (2) bullish, or (3) bearish: - Bullish
Some Warren Buffett Tenets:
Is management rational? - BAC’s Brian Moynihan expects the bank will increase its dividend and boost its share buybacks once its passes its Fed stress tests. Last month, it announced a 25Bn share buyback plan with its excess cash.
Focus on return on equity, not earnings per share. - ROE on a rising trend, 7.58% from 6.14% last quarter.
Calculate “owner earnings.” - Owner Earnings = Net Income + Depreciation, Amortization +/- Other Non-cash charges - Full Capex +/- Changes in Working Capital (Assets – Liabilities or Shareholders Equity) - 17.1B + 2B – 6.2M + 16.2B = 34.7B/8.7B = $3.99 owner earnings per share. - Price to owner earnings: Current price = 42.36/3.99 = 10.62, vs. 18.19 PE Ratio (TTM), this is undervalued in the short-mid term.
Look for companies with consistent and high profit margins. - Profit margin of 0.18 vs 0.1396 historical average (increasing trend).
Last share wins.
I roll put verticals as the price rises month over month...
Easy game.