ChartWatchCentral Premium Stock Picks

A Strong Foundation

by
Christina Nikolov
Founder/CEO, ChartWatchCentral, Inc.

Date: July 23, 2010
Company: Bank of New York Mellon
Ticker: BK
Price: $25.82
Opinion: Bullish

Comments: If you are looking for a place to stash some of your extra investment capital, consider the shares of Bank of New York Mellon, because we believe they are considerably undervalued at their current price of $25.82. First, the company touts price/sales and price/book multiples of 3.7 and 1.0, versus 4.1 and 4.9 for the Asset Management Industry. Not to mention, Bank of New York Mellon also sports a debt/equity ratio of 0.71, which is 29% lower than its typical peer. But best of all, the company is projected to post a $2.26/share profit for the current year ending 12/2010, compared with a loss of $1.13 last year. Then in 2011, per-share earnings are slated to soar another 18% to $2.67. With BK currently trading at 11 times 2010 earnings, all the equity needs to do is rebound to a price/earnings multiple of 18 (the median figure during the past five years) and you will see the share price at $40.68. From a technical perspective, the shares are looking tremendously bullish at this juncture, with what appears to be a head and shoulders bottom forming over the past two months. Once the share price catapults above the pattern's neckline (depicted on the chart) at $26.92, expect that level to act as support during any normal pullbacks. To profit from an upside move to $29.75 over the next several months, we suggest buying the September 25 Call at $1.59. Or you could pay $5.71 for a January 2011 $20/$30 Call Spread. We suggest this particular spread because the long call is far enough 'in the money' where most of the price reflects intrinsic value, while the short end of the position is not only above our target price, but also reduces our breakeven price to $25.71, which believe it or not is below where the shares last traded.