Bank of America Stock to Buy and Hold
Finding the right stock to buy is often the biggest challenge. Especially if you are more of a long-term investor as opposed to a day trader you need to choose counters that will be profitable over the long-term and continue to yield returns for a sustained period. Bank of America stock is one of the ideal one in this case.
Please note that what you read in this article is NOT a trading and investment advice. It is just fundamental and technical analyzing of Bank of America stock as a good choice to buy and hold for the purpose of long term investment. You trade and invest at your own risk.
The basic wisdom is to carefully analyze a stock’s fundamentals. Then make an informed choice on the basis of growth prospects that it might offer going forward. It is very important to consider growth in the bigger perspective. The reason is that that alone can often determine the actual gain curve going forward.
In this context, Bank of America stock comes up as a great stock to buy and hold for future. The Bank of America stock has come a long way from the post-Lehman crisis and the nightmare that followed. In fact, the way this stock has recovered and the steps that the company has undertaken to recover from the throes of near disaster goes a long way in helping you understand the reliability of the brand.
With Bank of America stock, buyers and investors have the major advantage of knowing that whatever be the short-term outcome be, their long-term prospects are intact with this counter and under no circumstance do they need to worry a lot. This is exactly why this stock has been recommended to buy by many leading market analysts.
Thumbs Up From Market Analysts
When a stock elicits a unanimously positive response from a plethora of it goes a long way in making clear to the investors that this is perhaps the stock that will lead them to better and bigger gains going forward. The Bank of America stock is perhaps a leading example in this context. A poll of more than 30 analysts covering the stock over a long period came out with an Outperform rating on Bank of America stock and advised investors to buy and holding it.
Buy and Hold
In fact, the most interesting part is there is not even one ‘Sell’ call on the stock, and relatively a good number of analysts are now recommending investors to ‘Hold‘ the Bank of America stock.
Perhaps the biggest indicator of the steady gains in the company has been the fact that the number of ‘Outperform’ rating on this counter remains same over the past one year. Not only does this highlight the level of stability that this counter offers but also the relative level of commitment from the company in continuously working on keeping the brand relevant.
The overall market forecast in terms of the share price potential is also big thumbs up for investors. The 12-month price targets for Bank of America stock is close to $23 level with some of the higher side estimate going to levels close to $27. The median price target of 23 saw over 1% rise to the forecast a year ago, and the lowest estimate too hovers in the double-digit zone around $14.50.
Now this lower price estimate above $14 is a big thumbs up for Bank of America stock because at these levels it is still above the 50-day moving average and a major technical indicator of a sustained bull run in the stock.
When you consider a stock an ‘Outperform’ candidate over the long-term, it also means that the stock will continue to offer gains for a longer period of time. In this context, it is important to understand that the dividend payout plays a major role.
Analysts expect the average dividend forecast at $0.25. Investors must understand that this is a whopping 24% plus jump from the previous fiscal and help the investor stand in good stead in terms of the average gain that Bank of America stock can yield. What is even more heartening is the sustainable rise in dividend payout. Even the previous year stock registered a solid 67% increase in the overall dividend payout on year on year basis.
The increase in dividend is not just about yielding strong gains for the investors on the dividend front alone. It also means that Bank of America stock boasts of strong fundamentals that result in sustained income for the extended period.
This is only possible when fundamentals are robust and the core growth of the stock continues unabated without interruption. This is only possible when the company continues to create value pockets in the present scenario.
Earnings Forecast & Valuation of Bank of America Stock
That brings us to the next key monitorable in terms of gauging Bank of America stock performance, and that is the earnings outlook.
How do analysts expect the Bank of America’s earnings to pan out over the longer term and what are the key growth avenues?
Well, forecasts indicate that the company is set to maintain an overall 10% plus growth rate in terms of earnings over year on year basis and if compared quarter wise, the extent of gains is 20% plus. The bank has been continuously exceeding analyst expectations every quarter and now has almost created a benchmark of excellence for itself.
This directly impacts the valuation as well. As per some recent data and analyst calculations, Bank of America stock is trading close to 9X forward earnings and the price to earnings ratio growth has seen a reasonable 1.5 gain. What is even more heartening is the fact that this stock is trading well below the book value level around $16 and this level is considered almost fair value levels for banks of this stature with comprehensive growth parameters and relative challenges like that tackled by Bank of America.
Positive Revenue Outlook
It almost goes without saying that the earnings are directly related to the overall revenue growth that Bank of America targets or are expected to clock going forward.
The Bank of America in this context offers very favorable projections for investors. On a close quarter on the quarter basis, the Bank of America stock is yielding a strong 1% plus growth prospects.
On year on year basis the growth in revenue is close to 5% and offers a strong case of robust long-standing income from the various avenues and verticals. The revenue outlook is also a key fundamental growth indicator.
Strong Brand Recall
That takes us to the numerous smaller elements that highlight a company’s sustained growth indicators.
In fact, though banks have not been the best bets post the Lehman crisis, it sure helps that some internationally acclaimed reports have indicated that the BankAm is among the world’s most valuable banking brands.
Not only does that fact highlight the bank’s huge growth potential but also speaks volumes about the stoic and poised leadership heading the bank.
Bank of America stock has been both persistent and absolutely consistent with their growth initiatives even in the market that was not particularly conducive to the overall success and growth of the banking industry.
Even after the nightmarish subprime crisis almost decimated bank valuation globally, the Bank of America stock almost rose from its ashes to reinstate lost ground and become a popular and strong banking and investment alternative.
This sure plays a key role in a bank’s growth and overall success over the longer term. A great leader sure makes a lot of difference in the team’s and the firm’s performance.
If you look at the last 15-16 years, the Bank of America has seen only two changes in the top most post.
Ken Lewis stepped down in 2010 and soon after Brian Moynihan took over as the CEO of the bank. This relative calm at the top most level not only indicate a stable management but also creates possibilities for policies to operate to completion for the absolute gains to come forth and provide relative value for the stock.
Normalization of Interest Rate
That brings us to the key economic development, interest rate outlook.
History is witness to a key fact that lending rates tend to move higher than current levels and higher lending rates would surely help in boosting net interest margins for the banks.
That essentially goes on to prove that in all probability banks are heading towards a better and greater gains going forward. The normalization of lending rates is also seen as a major factor helping the overall growth of the banking industry.
Growth in Loans and Deposits
Deposits and loans are absolutely crucial. In many ways, it would not be wrong to say that it is pretty much the bread and butter elements deciding on a bank’s profit outlook.
Some recent earnings reports for the Bank of America indicate that a whopping increase in overall deposits and loans offered by the bank and the numbers are set to move even higher. It is needless to mention that this is a big indicator of the core health of the bank and the overall of the Bank of America stock growth potential going forward.
Not just that, what’s even more heartening is the decided improvement in the bank’s loan portfolio mix.
Not only is Bank of America working towards better diversifying its loan portfolio but also aims at simplifying its pro. It is particularly worth mentioning this context that the bank is working to not just increasing its loan portfolio but also raising its loan exposure to businesses at large.
Unlike what was seen in 2009 where almost two-third of the bank’s loan was tied up to the housing sector, the current mix of consumer and commercial loans stand at a healthy 50% each.
Not only does it reduce leverage to any specific sector, it also goes a long way in raising the overall growth of the company in a comprehensive manner, and so the growth of the Bank of America stock among all the other banks.
It is almost undeniable that a sustainable growth in deposit and loan portfolio also works towards bringing about a strong earnings performance going forward. They also play a key role in strengthening the fundamentals of the bank.
Another key indicator of a bank’s strength is the capitalization levels of the bank.
There is more good news than bad for the Bank Of America stock buyers and investors in this context. In fact, the bank ended the first quarter of 2016 with a Tier 1 common capital well north of $160 billion. This is over $20 billion higher than the threshold limit which is considered mandatory for a bank to be designated as well capitalized.
A well-capitalized bank also indicates that the management is well prepared to deal with exigencies going forward and reassures investors of maintaining gains over an extended period.
Share Buy Back
If there can be any other big indicator of a firm’s strong potential, it is got to be the share buyback program.
It reflects the management’s commitment to better prospects, rewards long-term shareholder and adds value to the Bank Of America stock’s pricing.
The Bank of America board perhaps taking into account all of these factors went ahead with the $4 billion share buyback agreement in 2015. As though that was not enough just under a year of that in mid-2016, it authorized an additional share repurchase and accounting for a total buyback of $800 million.
It is needless to mention that a buyback instantly boosts the overall EPS level and makes a company more valuable to investors over a longer time frame.
Cut-down Long-term Debt
One snag that could severely impact a company’s valuation is surely the long-term debt.
Not only does it reins in business prospects but also deters investors from making large commitment due to uncertainty in ways that this debt amount will unravel.
Therefore in this context, it is particularly heartening that the Bank of America management has been working tirelessly to reduce the debt significantly, this has given a lot of confidence to the Bank of America stock buyers to keep holding.
From over $520 billion levels in 2009 just after the Lehman Crisis, the company’s debt now stands under $250 billion and thereby creates considerable room for inorganic growth on an overall basis. Expanding operations along with a reduction of debt is good news in terms of valuation and earnings prospects and makes the Bank of America stock a great long-term buy investors looking at sustainable gains.
Strong Payout Ratio
The payout ratio along with strong dividend growth surely makes a stock a lot more attractive.
In this context, it is worthwhile to mention that Bank of America’s payout ratio of 15% along with the yield hovering around the 1.5% mark are clear indicators of dividend expansion going forward and promising more sustainable gains for the Bank of America stock buyers.
Therefore, it won’t be wrong to conclude that the Bank Of America stock is a strong buy not just by virtue of the valuations it stand at currently, but also the potential value it could offer going forward both in terms of pure numbers, earnings, debt levels and EPS as well as the potential to clock in fair amount of inorganic expansion.
What’s particularly heartening is inorganic expansion doesn’t just improve the product mix but significantly impact the top line and bottom-line of a business.
A strong dividend payout accompanied by core valuation provides just the right recipe for a robust investment proposition. When investors are putting in their hard earned savings into a stock, it is imperative that the stock justifies the trust associated with it. In that context, the Bank of America stock shines in all aspect and remains a big ‘Outperform’ candidate over the longer term.
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