Stock Selection Still Matters, Exhibits BAC & MS

Morgan Stanley ($MS) and Bank of America ($BAC) are two utterly broken stocks.  Both of them are taking out multi-year lows.  The chart below shows them on a percentage basis over 60 months versus the flat-lining S&P 500.  Stock selection still matters, regardless of the timeframe and nothing is written in stone that large companies get to be “blue chips” forever.

Behold the suckitude:

Why do these two banks look so much worse than most large company stocks over the last few years?  Simple, we have no idea what business they’ll be in tomorrow.  They can’t do the mortgage stuff the way they were doing it.  They can’t be deposit institutions while running internal hedge funds. They also can’t be levered 40-to-1 in bull markets.  Bank of America and Morgan Stanley are now basically in the plain vanilla banking and retail brokerage business, moreso than ever with the acquisitions of Merrill Lynch and Smith Barney, respectively.

The simple fact is that, even once their balance sheets are cleaned up (which could take years yet), what you’re left with are two very mediocre, albeit large, banking giants with very little sex appeal.  In the meantime, there are only bad headlines and lackluster comps in their future.

Bon chance, Old School Wall Street.



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