Bank of America Corp (BAC) — With $2.15 trillion in assets, this is the second-largest U.S.-based financial holding company.
Bank of America, along with other financial institutions, has felt the sting of falling mortgage banking revenues and lower net interest income. But the recent rise in short-term interest rates by the Federal Reserve should help banks by widening the spread they can capture between short-term and long-term rates.
S&P Capital IQ Equity Research estimates Bank of America’s net interest margin will increase to 2.2% in the first quarter of next year, up from 2.17% a year ago, and reach 2.35% in the fourth quarter.
Its analysts project 2015 earnings will more than quadruple to $1.46 per share, up from 36 cents in 2014, and increase another 10% to $1.60 in 2016.
In early November, Capital IQ raised its price target for BAC stock by $2 to $20, noting the bank has billions of dollars in low-yielding short-term assets that should benefit quickly from interest rates increases. Now that the Fed has delivered on its first rate hike, we could see the target raised again.
BAC stock made a multiyear high at $18.48 in July. The August and September market sell-offs drove shares to a double-bottom under $15. The bottom was accompanied by very high volume, and it now appears to have been a double selling climax.
Since the second bottom on Oct. 2, BAC stock rallied, forming a quadruple-top with a resistance line at $17.80, just below Thursday’s high. A golden cross and buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), preceded the rally, and the advance was accompanied by very high volume.
Buy BAC stock at $17 with a trading target of $23 for a potential gain of 35% by the end of Q1 2016.
