Bank Of America: Stick With This Bank In 2020

Jan. 03, 2020 11:02 AM ETBank of America Corporation (BAC)16 Comments
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  • Bank of America's stock outperformed the broader market by a wide margin in 2019.
  • The investment community is concerned about how the interest rate environment will negatively impact the banks in 2020 but, in my opinion, the concern is overblown.
  • I plan to stay overweight Bank of America through at least 2020.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Get started today »

Bank of America's (NYSE:BAC) stock performed well in 2019, as BAC shares finished the year higher by over 40%. In addition, BofA's stock outperformed the broader market by over 14 percentage points.

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The stock performance over the last year was impressive but, in my opinion, BAC shares still have a lot of room to run. To this point, I believe that investors should consider staying the course with BofA because I believe that the risk is currently to the upside, if you are willing (and able) to look out 3-5 years.

The Latest, Strong Results In A "Challenging Environment"

BofA recently reported Q3 2019 financial results that beat the top- and bottom-line estimates. The bank reported Q3 2019 adjusted EPS of $0.75 (beat by $0.07) on revenue of $22.8B (beat by $70M), which also compares favorably to the year-ago quarter.

Source: Q3 2019 Earnings Slides

There was a lot to like about BofA's Q3 2019 results, as I recently described here. There is no denying that BofA has continued to report strong operating results over the last 12 months but when it comes to an investment in this bank the two concerns that I hear the most are: (1) there is no need to hold onto BAC shares in the current rate environment, and (2) the valuation is stretched.

I believe that both concerns are overblown.

Rates Matter But There Is More To The Story

Some pundits cannot seem to get past the idea that the current interest rate environment will negatively impact the banks, but let's not overlook the other catalysts that BofA has in place. To start, an improving regulatory environment has been viewed as a positive development for the banks, as some of the burdensome rules and regulations have been rolled back over the last few years. And let's

ChartData by YCharts

ChartData by YCharts

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This article was written by

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Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long BAC, C. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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