Gartmore’s Rogan on US stock opportunity

As the fallout from US sub-prime problems continues to unnerve international investors, it may seem counterintuitive to add a US financial stock to a portfolio.

However, Neil Rogan, manager of the Gartmore Global Focus Fund and the Gartmore SICAV Global Focus Fund, believes there are good reasons to add Bank of America to the Fund’s concentrated list of shares. Not least that, being light in exposure to US stocks and, in particular, financials, the inclusion of Bank of America might reduce the Fund’s overall risk profile.

“Bank of America, with $1.5 trillion in assets, is the second-largest bank in the US, covering some 30 states from coast to coast. In a move that may come to be seen as the cavalry coming to the rescue, Bank of America has used its financial strength to make a $2 billion investment in Countrywide Financial, the largest mortgage lender in the US”, says Neil.

Neil continued, “rather than a bailout for Countrywide, the deal constitutes bargain shopping for Bank of America, as Countrywide's shares had almost halved in value amid concerns about a credit crunch in the mortgage industry. In particular, the preferred securities snapped up by Bank of America yield 7.25% and can be converted into common stock. As a sign of confidence in the future, Bank of America has also recently announced a 14% increase in its own regular quarterly dividend. Consequently, the stock yields nearly 5%, with consensus earnings giving a P/E multiple of 10.2x for the current year.”