Just Stop Worrying Already and Buy Bank of America Corp Stock

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BAC stock - Just Stop Worrying Already and Buy Bank of America Corp Stock

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Last year was a good great one for Bank of America Corp (NYSE:BAC) shareholders. BAC stock was up a little more than 40% in 2017, following 2016’s 60% advance. That’s a better performance, in some cases far better, than shares of JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC) performed for the same two-year stretch.

This year, however, has been far less thrilling for B of A shareholders. While the market’s up roughly 4% year-to-date thanks to the recent recovery, BAC stock is barely at a break-even, with shares of the mega-bank simply not riding the recent bullish wave.

There are several plausible reasons for the weakness: uncertainty about the economy, uncomfortably slow forward progress for the top and bottom lines, and nagging operational efficiencies, or more likely, a combination of all three.

There comes a point, though, when the right thing to do is take a step back and look past all the bad things that might happen and look at all the good things that are happening.

Think Bigger-Picture

If you have your doubts about Bank of America’s foreseeable future, you’re not alone. BAC stock is down nearly 10% from its March peak and looks like it’s moving back within striking distance of multi-month lows.

Oddly enough (though it doesn’t change its destiny) the mere fact that it’s trending lower may be keep would-be buyers at bay and prodding present owners into selling, exacerbating the weakness.

This is a market environment that’s facilitated sudden reversals and changes of heart, however, so take the current downtrend with a grain of salt. It could reverse course with little to no warning. The fundamental underpinnings for such a rebound are certainly in place.

The graphic below tells the tale. Revenue is rising. Income is rising. The dividend is rising. And, all three are expected to keep growing more or less at their present paces.


Click to Enlarge
Source: ThinkorSwim

And there’s the rub. B of A is growing, but doesn’t seem to growing all that quickly. Other banks may be a better growth opportunity.

What if, however, that slower pace of progress was by design?

It’s an idea that puts something said of Bank of America CEO Brian Moynihan last week.

In short, a close scrutinization of the company’s inner-workings reveals Moynihan and the board of directors are deliberately backing off on risk-taking, and instead focusing on more reliable prospects even at the potential expense of the bottom line.

It’s a mindset that aligns with something he said in a shareholder letter penned earlier this year, Bank of America was going to “pursue responsible growth.”

It’s a decision that hasn’t been free of adverse consequences. Several of its key bankers have left the company of late, presumably for proverbial greener pastures, because it seemed as of the bank was losing out on deals, and profits.

Lower profits, but fewer alarming surprises as well. That’s the trade-off investors loved in 2016 and 2017, but have fallen out of love with this year.

Bottom Line for BAC Stock

In its defense, BAC stock is still faring better this year than stocks of other banks like Wells Fargo and Citigroup, and it’s essentially matched the year-to-date performance of JPMorgan. All of them have been laggards though and none of them really deservedly so.

Of those four big banks in question though, the most disappointing and surprising performance is B of A’s simply because it’s arguably healthier and less prone to cyclical headwinds than the others.

Quality isn’t obscured indefinitely though, and the fact that Bank of America is just a little bit different than its peers will sooner or later be reflected on the chart. That makes the current weakness an entry opportunity, even if the absolute bottom’s yet to be hit. It takes guts not to buy a stock that’s rising, but that’s how and where the real money in this game is made.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/bac-stock-stop-worrying/.

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