Last year, the Bank of America Corporation (BAC) was proclaimed the best performing stock as it rose to 109.5% in the Dow Jones Industrial Average. It is only fair that critics and analysts say that Bank of America will continue this trend and is therefore one of the must own stock for this year. It is most likely about momentum, which has a high probability of keeping its pace.
Third quarter earnings will soon be out and this will give investors a helpful insight on whether the Bank of America Corporation as well as the other businesses are financially healthy or not. Bank of America has a market cap of a little over $150 billion and the financial institution is expected to report at least $611 million in revenue with 71 cents of earnings per share compared to 61 cents EPS on $624 million in revenue last year. This indicates that the Bank of America is still in an upward trend, specifically since it has gained almost 40% since last year.
Right now, the company is valued at over $149 billion with shares trading almost $14.00 for every share. Shares currently cost around 15.38x, which makes them a little but expensive compared to the industry standard of 13.09x forecasted price per earnings ratio. Income investors will receive pay $0.04 for every share each year in dividends. This gives a yield of about 0.30%.
Even though the forecasts about Bank of America's third quarter earnings seem to look pretty good for the company, they still intend to cut costs as they will reduce their workers particularly in the mortgage area. Despite the fact that there will soon be job cuts in Bank of America, the market is still in favor with them. Both JPMorgan Chase (JPM) and Well Fargo (WFC) have publicized their earnings, and the bottom lines do not appear positive for future bank investors. The lack of mortgage activity has affected the two banks. It is anticipated that Bank of America will also experience the decrease in this banking section, but they may just surprise the investors - in a good way. This is because they have been working hard to boost their market share, which they have announced at a press conference. According to BAC, their presence has increased 5.2% (4.1% last year).
Things are indeed looking good for Bank of America. After they have announced earlier this year that they had obtained the permission to buy back stock - something that they had not done since the financial crisis in 2008 - they redeemed the stock just two months later. The buyback was intended to be a part of their much broader corporate strategy that gives focus on net interest margin management. The plan was to refinance their expensive liabilities and pay the non-cumulative dividend yield. Stock buybacks are anticipated to go on a fast track by next year and CEO Brian Moynihan believes that stock buybacks help them drive value for the shareholders of Bank.
Investors who intend to trade with the Bank of America stock must be able to accept that there is high volatility in the market for this specific stock. Such acceptance is key to achieve greater returns. Even though the market remains to be volatile, the sales of US structured notes connected to Bank of America have increased. This happened as the issuance of securities tied to a single stock soars.
For the investors who are still in doubt about Bank of America, here is one reason to buy Bank of America stock right now: its deposit base. BAC has more than one trillion of deposits, including deposits from consumers and businesses.
Despite many talks about how most of banks, including Bank of America, have become complex over the past few years, much of their core function still relies on deposits. Breaking down Bank of America's deposits, there is about $720 billion of deposits, which are interest-bearing, meaning that Bank pays customers as they keep the amount that they have deposited in their account. Currently, Bank of America pays 0.2% on the mentioned amount of deposits. On top of that, there are almost $360 billion of non-interest-bearing deposits. Total the numbers up and it is easy to see that BAC has a huge advantage in terms of their earnings profits.
One thing is for sure right now: the sentiment of the investors as well as the financial analysts toward Bank of America is still bullish. Based on tweets and news, Bank of America will still see great returns in the stock market.