Shares in Bank of America Corp (NYSE:BAC) have been on a tear lately. Since hitting their low for the year of $11.11 in February, Bank of America stock is up by one-third. Investors got another chance to buy it at $12.18 in June, but since then, BAC has been on a steady rise, and opened for trading on Oct. 7 at over $16.
Our Serge Berger likes what he sees, and now has BAC stock on his buying radar. But buying right this second could be a trap. The price-to-earnings multiple on the stock is up to 14, higher than peers like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) or Wells Fargo & Co (NYSE:WFC). BofA reports earnings in 10 days, and analysts are hoping for 35 cents p[er share, on revenue of $20.76 billion.
That sounds good, but would fall short of last quarter’s 37 cents per share, or the 36 cents per share achieved in the same quarter a year ago — when BAC shares were lower than they are now. Though Bank of America stock’s valuation looks a little better this morning — but only because of a disappointing jobs report that put a damper on interest-rate hike hopes.
There also is a global economic storm coming, a financial hurricane that will batter global business, and hurt the bank’s results.
Who says so?
Bank of America says so.
Merrill Lynch’s Warning
We are reaching “peak everything.” Those were the words of Michael Hartnett, chief investment strategist for Merrill Lynch, which Bank of America has owned now for nearly a decade.
Bullish trends that have boosted globalization and liquidity look set to reverse, Hartnett’s team wrote yesterday. Politicians are increasingly anti-immigrant and anti-trade. There is a backlash against inequality. The global investment map is being withdrawn. Bonds are out, commodities and equities are back in.
That means the value of assets banks like Bank of America hold on their books is due to fall. It means things like oil and gold are going to look like better investments. Market sectors that have underperformed in the past year are due to outperform.
Does any of that sound good for Bank of America stock holders?
A Political Call
It should be emphasized, in a political year, that this is something of a political call, and one that is backward-looking.
The Brexit vote, and that government’s decision to pursue an exit from the European Union regardless of the economic consequences, has unnerved markets. The rise of ultra-nationalists across Europe, Asia and the U.S. has bankers battening down the hatches like Floridians before Hurricane Matthew.
Political trends can reverse, in response to economic action, but for now other analysts are heeding Bank of America’s warning and downgrading its stock. Vetr has downgraded BAC stock, and Zacks just says “sell.”
I am personally more sanguine about the economic outlook than most, because I’m more hopeful about the political outlook. Trends may already be reversing, at least if 538.com is to be believed.
That doesn’t mean I’m going to jump on BAC shares this morning. When investors or analysts panic, I like to wait it out before going for bargains.
But the price-to-book of Bank of America stock remains 0.7 — dirt-cheap by historical standards, and rising interest rates (eventually) do mean money will get a price.
In a few months, BofA might look very interesting.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long WFC.
