Until early October, Bank of America (NYSE:BAC) stock was stuck in a stubborn range of $27 to $30 or so. But setup for a major breakout to the upside.
The result is that the year-to-date return is a sizeable 45%, handily beating the overall market. In fact, the BAC stock price was not the only major bank that posted sizzling gains. Others include JPMorgan (NYSE:JPM) and Citigroup (NYSE:C). Even the beleaguered Wells Fargo (NYSE:WFC) was able to muster a gain of 20%.
So looking to 2020, what’s next for Bank of America stock? Can the gains continue? Or might things get tougher?
Well, I’ve been a bull on Bank of America stock for some time. And even with the strong run-up, I think the shares still look attractive. Actually, if there is turbulence in 2020, which could easily be the case with the upcoming Presidential election, I still think Bank of America will be a source of stability.
The Pros
No doubt, scale is hugely significant with banks. As for Bank of America, it has a diverse platform that spans markets like retail, small business, wealth management, investment banking and global markets.
Note that the company is No. 1 in deposit share and digital banking, with 66 million clients and 16,500 ATMS. There are roughly 26 million client interactions each day.
OK, so what about the interest rate environment? Might the Federal Reserve’s easing be a problem? Traditionally, this would be the case as Bank of American gets a large share of its profits from the difference of interest it charges clients and the costs for deposits (this is known as the net interest margin). But interestingly enough, this has not been a problem. Net interest margins for Bank of America have been increasing lately primarily because of the costs of deposits have been muted.
It also helps that Bank of America is a much leaner organization. A big part of this has been the dramatic restructuring after the financial crisis. But Bank of America has also been retooling its IT infrastructure. For example, the company recently announced a major partnership with IBM (NYSE:IBM) to transfer more of its mission-critical systems to the public cloud. This will not only save on costs — in terms of no longer having to manage private datacenters — but will also allow for centralization of data, which will help with analytics and artificial intelligence.
But of course, Bank of America has been investing aggressively in consumer-facing technologies. Consider that the company has 38 million active digital banking users and 28.7 million of them are on mobile devices. There has also been much traction with the Zelle payments app, which handles about 60% of Bank of America’s auto financing applications. The company even developed an app for the Apple (NASDAQ:AAPL) Watch that allows corporate customers to make payments of up to $500 million.
Bottom Line Bank on America Stock
In terms of growth, a key is certainly the loan side of the business. And for the most part, things are tracking nicely. In the latest quarter, there was an overall 4.6% increase on a year-over-year basis and the commercial segment saw a 7% jump. Keep in mind that Bank of America has been focused on building out a network of investment bankers for key regional markets.
Finally, despite the rise in Bank of America stock, the valuation is still reasonable, with the forward price-to-earnings ratio at 12X. In other words, given the positive fundamentals, there should be more upside with the shares.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
