No one who looks at the price action in Bank of Montreal (TSX: BMO) would claim that bank stocks are boring. Despite a slight bounce on Friday, the stock has dropped more than 20% in just seven trading days and is down 40% from its 52-week high. I am not a stock analyst (not that it is a huge shortcoming because most analysts chopped their “price targets” after BMO fell sharply) and it is very much possible that BMO has more mines waiting to go off in the Capital Markets division.
Still, it is hard not to feel that BMO is a huge bargain at these prices, as the biggest problem seems to be the fear of the unknown. Nobody seems to have a clue about how bad things could get, so investors are imagining nightmare scenarios like a cut in the dividend or issuing equity. The Bank’s poor disclosure record isn’t helping matters.
Assuming BMO’s problems are manageable and the bank can consistently hit cash earnings of $5, the stock is trading at just 8.6 times and sports a dividend yield of 6.5%. The high dividend yield and low expectations should provide a floor on the stock and the stock could have some immediate upside if it can resolve its credit issues.
Disclosure: I own shares in BMO and this post is not a recommendation to buy or sell. Do your own due diligence.
