Bank of America Corp (BAC) Is Still a Huge Buy

Bank of America Corp (NYSE:BAC) has been on a tear for two months, but it has looked like a slam-dunk buy for ages, and now Wall Street has come around to the same view on BAC stock.

Bank of America Corp (BAC) Is Still a Huge BuyWhile everyone has been focused on interest-rate policy or trading volume, BAC has quietly gathered up a host of buy calls. Indeed, as The Motley Fool noticed recently, going by recommendations and target prices, BAC is the Street’s favorite big bank stock.

They’re right. Of the 34 analysts covering Bank of America stock, 27 call it a buy and seven have it at hold, according to a poll by Thomson Reuters. No one says it’s a sell. Only Citigroup Inc (NYSE:C) comes close to getting that kind of love on the Street.

At the same time, BAC has one of the highest price targets among peers. Analysts’ average target stands at $17.28, which implies upside of around 13% in the next year or so. For the sake of comparison, Wells Fargo & Co (NYSE:WFC) — aka Warren Buffett’s favorite big bank stock — carries implied upside of less than 10%. The other most well regarded big bank, JPMorgan Chase & Co (NYSE:JPM), has implied upside of less than 6%.

BAC Stock: Patience Is the Key

As we’ve said before, it’s going to take a good long while for BAC stock’s value proposition to pay off. After all, valuation tends to revert to the mean, but it can take its own sweet time in doing so.

Take the tantalizing prospect of a rate-tightening cycle, strength in the housing market, lending and retail banking — and projected earnings-per-share growth of 22% next year — and the bias on this name is to the upside.

And, as mentioned, it’s just too darn cheap: With a price-to-book multiple of 0.65, BAC stock trades at a whopping 35% discount to shareholder equity. This is unusual for a bank’s price-to-book, which should sit around 1.0.

The low valuation was reasonable in the aftermath of the financial crisis. Back then, BAC’s ability to come back was seriously in doubt. Today, however, it’s taking advantage of gradual improvement in the domestic economy and cost cuts. The stage is set for growth. Surely, BAC stock is worth something at least resembling shareholders’ equity in the firm.

Bank of America stock has been looking pretty frisky of late, rising roughly 15% since the end of June, but it’s not too late to initiate or add to a position. Just look at that valuation again.

The on-again, off-again chatter about a Federal Reserve rate hike is a headwind, but then the effects have been priced in for a long position. Besides, the Fed can’t stand pat forever.

This one is likely to be a grind, but BAC stock has market-beater written all over it if you think like an owner and hold on.

As of this writing, Dan Burrow did not hold a position in any of the aforementioned securities.

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