Banking on Bank of America

Aug.29.06 | About: Bank of (BAC)

Analysts are loving Bank of America (NYSE:BAC) right now. It is a solid brand that is known throughout the country, as it is the only bank to exist from coast to coast, with an emphasis on the West and South, where it is thoroughly outpacing the competition. Its profits have been strong, and so too has been its growth. Its low-cost deposit base is enormous, and it is steadily grabbing more customers from its competition with savvy sales tactics.

In addition to being a bank for retail banking -- like your everyday savings and checking accounts – Bank of America is setting its sights on asset management and becoming a name brand corporate and investment bank. It also has solid credit card and computer banking divisions.

It recently acquired MBNA, and this, in addition to its earlier acquisition of Fleet, has quieted critics who worried about its poor big company acquisitions history.

While I’m wary of jumping on any bandwagon of hype (too much hype about value is one of the fastest ways for a stock to become overvalued), I am on board with those who are praising Bank of America. It has been doing everything right and then some.

But I would take a slightly less hyperbolic stand than other admirers of the company: yes, it is a great pick, but let’s not forget the rising interest rates. These will take a toll on all banks, including BAC. Also, the merger of MBNA will take some time to complete, and there may be hiccups along the way. I still think it is a terrific pick, but it may take longer to see the upside than some are predicting.

Type of stock:
This huge -- $237 billion market cap -- financial services company is breathing down the neck of its biggest competitor, Citigroup (NYSE:C).

Price target: Now trading at its all time high of $52, BAC is a decent pick. I wouldn’t count on immediate skyrocketing growth; this is a solid portfolio addition that will see substantial gains over the very long term. But it will be a slow journey and their acquisition strategy can be tough if you chose the wrong partner.

BAC 1-yr Chart