Bank of America Corp (BAC) Stock: Is the Trump Boost Over?

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Bank of America stock - Bank of America Corp (BAC) Stock: Is the Trump Boost Over?

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The shares of Bank of America Corp (NYSE:BAC) have been on fire, driven by the surprising outcome of the presidential election. It’s as if the company has suddenly become a hot tech operator. Over the past week, Bank of America stock has logged a torrid 22%.

Bank of America Corp (BAC) Stock: Is the Trump Boost Over?

But does the rally still have legs? Or should investors be cautious on BAC?

Bank of America Stock on a Surge

Well, it’s reasonable to assume that the Donald Trump administration will have a positive impact. And not just with Bank of America stock, of course. All the mega banks — like JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC) — should be poised for stronger long-term growth.

Here are some of the factors to consider:

  • Regulation: Because of the financial crisis of 2008, the banking industry has had to deal with tremendous litigation and new regulations, such as the Dodd-Frank Act. So yes, Trump may decide to get rid of much of this. Although, this may not matter so much either. The irony is that the banking industry may want to maintain the existing rules since they are extremely expensive for smaller banks. If anything, a Trump Administration may be more beneficial if the approach is to be lax with the interpretation of the existing rules, which will make it easier for companies like BAC to grow their businesses.
  • Fiscal Stimulus: While analysts try to determine what Trump will ultimately do when he comes to power, there are still some important things to keep in mind. He has spent much of his career in real estate and has also shown a penchant for minimizing taxes. So it seems like a good bet he’ll focus on infrastructure projects and cutting back on taxes. With this, there will likely be a boost to growth but also the budget deficit … and higher interest rates. No doubt, all these should be extremely bullish for holders of Bank of America stock. If interest rates increase by just 1%, the company’s banking revenues could jump by an impressive $5.3 billion.

Now it is important to keep in mind that — even if Trump does all of this — the impact will not be immediate or linear. Let’s face it, it can easily take a year or two for new infrastructure projects to get started.

At the same time, there may be some offsetting impacts. For example, higher interest rates will inevitably weigh on mortgage loan volumes.

But perhaps the biggest issue for Bank of America stock is that the bull run has probably been overdone — and there needs to be some type of cooling off period. Already various Wall Street analysts have been getting skittish.

Note the following:

  • Robert W. Baird has downgraded BAC stock from “outperform” to “neutral” and has put the price target at $18.
  • Guggenheim Securities has dropped its rating from “buy” to “neutral” and has placed an $18.50 price target on the shares.
  • Deutsche Bank AG (USA) (NYSE:DB) has downgraded Bank of America stock from “buy” to “hold” and the price target is now at $18.

Besides, the dividend yield is at only 1.5% and the forward price-to-earnings ratio is at about 12.5X. To put this into perspective, Apple Inc. (NASDAQ:AAPL) has a multiple of 11X and a dividend payout of 2.1%. Oh, and the company is likely to grow at a faster rate than BAC during the coming years!

So again, there should be some caution here. If anything, it looks like plenty of the good news has already been baked into Bank of America stock.

In other words, it’s probably best to wait for a dip before thinking about a purchase.

Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/11/bank-of-america-corp-bac-stock-ipmedia/.

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