5 Reasons I Can’t Sell BofA Stock — And Why You Should Buy

At the end of last year, I picked the brains of several investing experts for a single stock pick they would recommend buying on the first trading day of 2011 and selling on the first trading day of 2012 � with the goal of beating the market for the calendar year. The pie-in-the sky hope was that our 10 best stocks to buy for 2011 that would give normal Joes a simple and tax-efficient opportunity to beat the market in 2011 thanks to our recommendations.

On the whole, that dream appears to be playing out thanks to a handful of standouts. �They include Zalicus (NASDAQ: ZLCS), a biotech stock picked by Michael Murphy that has gapped up 75% in less than four months, and fabless semiconductor play Mindspeed Tech (NASDAQ: MSPD) picked by Nancy Zambell, which is up over +25% so far in 2011.

So what my part in this list? Well, I cast my lot with that dog of a financial stock Bank of America (NYSE: BAC) � both in my recommendation for our feature and for my own brokerage account. Specifically, I bought 75 shares at $13.34 a share. Read my initial reasons for buying Bank of America here.

After some poor earnings and the Fed�s dividend denial, I�m 8% in the hole since my buy-in right before New Year�s. But even now I can�t bring myself to cash out of my BAC shares at current pricing and diving into AAPL shares at current pricing.

Here�s 5 reasons why I can�t sell Bank of America… at least not right now.

Corporate focus and restructuring. Before the financial crisis, Bank of America was an aggressive acquirer. The much-maligned Countrywide deal is the best known these days, let�s not forget the $47 billion in cash and stock for FleetBoston in 2004 and $35 billion for credit card powerhouse MBNA in 2005. While BofA is far from a streamlined corporate operation, the harsh reality of the financial crisis and end of acquisitions has forced the company to focus on integrating operations and cutting out the fat. That should result in improving earnings even if all things remained equal.

Mighty Merrill Lynch: And what�s more, the fire-sale purchase of Merrill Lynch in 2008 has given Bank of America access to bigger revenue streams. Merrill has strengthened Bank of America�s high-end investment offerings, and opened the door for more corporate advisory work and wealth management. Considering that the first quarter of 2011 was the best for M&A since 2007 � and that BofA Merrill Lynch ranked third in the advisory spot worldwide, ahead of vaunted Goldman Sachs (NYSE: GS) � Merrill�s business segment will be a very profitable enterprise in the months ahead. In fact, it already is judging by the performance of BofA�s �global banking and markets� segment in last week�s earnings report.

Better overall credit quality: One of the primary reasons I bought BAC stock was because I noticed improving credit quality on the financial stock�s balance sheet. And though Wall Street was disappointed that the bank�s earnings miss, it cannot be overlooked that delinquencies, non-performing assets and charge-offs continue to decline at BofA. This is a crucial long-term trend � and one that actually resulted in a reduction in loss provisions by over $2 billion in the most recent quarter. Bank of America is steadily extending credit again, but most importantly it is extending credit to folks who actually are paying their bills.

How much worse can it get? Despite this improving credit situation, most investors remain focused on the old news. Yes, the mortgage business continues to drag on earnings, sucking $2.4 billion out in the most recent quarter. But note that was substantially lower than prior periods. Yes, mortgage liability issues continue to scare off many and the threat is very real. But as the January rally after a Fannie/Freddie settlement showed, these issues have already been priced. After all, that $2 billion write-off was cheered as �good� news. From Wikileaks rumors to the departure of its CFO, the bad headlines are mostly baked in and investors have already braced for bad news. Frankly, how much worse can it get based on the current bleak outlook?

�Smart money� sees a bargain. I�m not contending that Bank of America will double by the end of the year. But it�s hard to argue against BAC bumping back up significantly when you look at Wall Street�s price targets for the stock. Out of 25 brokers watching the stock (according to Thomson/First Call data) the median target is $18.00 and the median is $18.18. That�s over 40% upside from current valuations. What�s more, the �low� target is $14 among all 25 brokers. That�s 12% above current pricing, a decent one-year return for any stock. Lastly, the most recent price forecast — from FBR Capital just a few days ago � is $15 despite a reduction from �outperform� to �market perform.� I don�t pretend to believe that Wall Street gurus know what they�re talking about 100% of the time. But if you�re going to disagree with two dozen analysts, you better have a darn good reason.

If an investor asked me today what I think of BAC stock, I would use these same reasons as a basis to recommend buying in. Maybe it�s just the self-justification of an investor underwater, but these reasons all still make sense to me. In fact, these are many of the very same reasons I chose Bank of America stock as my buy-and-hold pick for all of 2011in the first place � so why would I flip-flop now? Read my initial reasons for buying Bank of America here.

Then again, I have to note my horizon is 12 months and not 12 days. There are certainly signs that BAC stock will move sideways at best for a little while in the wake of earnings. I also have only a few thousand bucks in my �play money� brokerage account, so I�m not dependent on this investment to generate income or provide in any way for my retirement. I have a conventional 401k through my employer for long-term financial planning. So for me, I can afford to let it ride a little more � especially considering the $8 fee I suffered on my purchase and another $8 charge on the sale shaves nearly 2% of my $1,000 investment in Bank of America simply for the pleasure of playing the market.

Bank of America may not be a good buy for everyone. Heck, it may even be a good sell for many of you who currently own it based on your investing goals.

But for me, I simply can�t sell. At least, �not yet.

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he owned a long position in Bank of America stock. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.