In Wednesday’s Stop Trading post, Financials Fallout, which entity had Jim Cramer “consistently concerned”?

“I have just been consistently concerned about Bank of America (BAC), both its yield and post-Countrywide,” began Cramer.

Given that my models show poor earnings quality, poor earnings momentum and poor price momentum, I can see why. The return potential, however, looks good if the other factors don’t end up drowning it out.

CNBC Stock Blog: Bernie McGinn says forget subprime — buy bank stocks. Which one did he call a “tremendous franchise”?

He also likes Bank of America (BAC).

“Bank of America represents a pretty good buy right here,” he said.  “It’s a tremendous franchise; it’s the number one in deposits, it’s number one in credit-card balances, it will be number one in mortgages.”

Of course, it is that last part that makes me nervous. In the models I use, Bank of America is most notable for poor earnings momentum, poor earnings quality and poor price momentum.

In his Friday “Game Plan,” Cramer said banks may bottom soon. But he warned of possible “catches,” including:

The catch here, and there always is a catch, is that if HOV and TOL report poor numbers and the U.S. has lost more jobs, Cramer’s predicting next week would be horrible for the financials. American International Group (AIG - Annual Report), Washington Mutual (WM) Wachovia (WB - Annual Report) and Bank of America (BAC) could sink to multiyear lows.

None of the stocks fare especially well in the models I use. HOV doesn’t even make it past the screens, and Toll Brothers scores among the worst for earnings momentum and return potential.

Bank of America scores poorly for earnings quality, earnings momentum and price momentum. The same applies for Wachovia, which also ranks low for free cash flow. Washington Mutual, by contrast, has a high free cash flow ranking but is also among the worst ranked for return potential.

AIG is the only name on the list that is not a net negative in my models. Its poor scores for earnings momentum and price momentum are offset by high marks for earnings quality and free cash flow.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Realty Check: Who sparked Countrywide CEO Mozilo’s “disgusting” e-mail reply?

“Disgusting,” Angelo Mozilo wrote in his inadvertent reply to an e-mail from Daniel Bailey Jr. who had asked the company to modify terms of his adjustable-rate mortgage.

My personal opinion is that Bank of America (BAC) is crazy to be buying Countrywide. I don’t know enough about the companies to say for sure, but I remember what happened to Conseco after they bought mobile home lender Greentree, which was that era’s equivalent of a subprime lender.

Conventional wisdom holds that magazine cover stories are contrarian indicators - by the time a company’s success or failure reaches the cover page of a major publication the story is so well known as to be completely reflected in the stock price. Therefore, all good news is priced in and the stock can only underperform or all bad news is priced in and the stock can only outperform.

While simplistic, the magazine cover indicator now has the support of recent academic research. This research did find that cover story headlines on Business Week, Fortune and Forbes tended to indicate that the mood (bullish or bearish) of the story had run its course in the market.

As a result of this research, I have decided to develop a portfolio of stocks based on using those three magazine’s covers as a contrary indicator. I also track this portfolio on StockPickr. This week’s results:

Forbes.com - Forbes Magazine Table Of Contents
Money For The Masses
Larry Light
Branch-heavy BofA leads rivals in retail deposits (also overall deposits), ATMs and card balances, which reap fees and interest.

Contrarian take: Stay out of financials, especially BofA. But you knew that already.

Risk returns - with a vengeance

For years big players ignored obvious dangers and reaped rich rewards. Now they are paying for their recklessness, and so is everybody else.  (more)

Contrarian take: Long everything. Risk premia, we hardly knew ye.