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Quantitative Metrics Suggest Bank of America Is Oversold

  • Bank of America (BAC) stock is a viable value play as its business verticals are starting to align once more.
  • Quantitative metrics indicate that BAC stock is oversold.
  • Relative valuation metrics convey a value gap.
BAC Stock - Quantitative Metrics Suggest Bank of America Is Oversold

Source: Jonathan Weiss / Shutterstock.com

Bank of America (NYSE:BAC) stock could be on the cusp of surging. The bank passed its stress test earlier this month and subsequently raised its dividend to 22 cents per share. I know many investors might fear a recession. However, there’s always uncertainty around. I’d rather buy banking stocks below book value instead of investing in high-beta tech names. Furthermore, investors are in dividend-seeking mode as the fight against inflation continues, which suits Bank of America as it possesses a lucrative, sustainable, and high-yielding dividend profile. Additionally, BAC stock is oversold amid investors acting risk averse during this bear market.

I believe BAC stock is an excellent investment opportunity at its current price. Let’s dive deeper into the asset’s prospects.

Ticker Company Price
BAC Bank of America Corporation $31.90

Analysis of BAC Stock Verticals

Although declines in the public equity market have been a burden, Bank of America’s verticals seem well-positioned and its stress test illustrates just that. BAC’s most recent stress test revealed a 10.6% common equity tier 1, well above the industry-required 4.5%. The bank’s positive stress test results convey its ability to maximize its risk-return utility by investing in assets with favorable risk profiles.

Furthermore, Bank of America recently reported robust first-quarter earnings. During the quarter, the bank delivered 1.78% year-over-year revenue growth, spurred on by more robust deposit and loan growth. Additionally, BAC beat its earnings target by six cents per share as it managed to dodge rising input costs. 

Considering the recent drawback in the equity market’s resilience, I’m not sure we’ll see the best second-quarter from Bank of America, but it will likely pick up the pace toward the back-end of the year. I say this because I expect the debt market to bolster the bank’s earnings amid rising interest rates. Also, it’s possible that the equity market could stabilize, which could create a more conducive environment for underwriting, brokerage, and mergers & acquisitions.

BAC Stock Price Levels

BAC stock’s approximate 30% year-to-date drawdown is a bit extreme. The stock has an all-time 5% monthly value at risk of 14.34%, meaning that its stock has historically lost 14.34% of its value in 5% of its traded months. In addition, BAC stock has a beta of 1.39x, which isn’t overly risky. Thus, BAC stock’s quantitative metrics show its recent drawdown is most likely overdone.

Bank of America stock stacks up well from a relative valuation vantage point. Its price-to-book ratio of 0.94x implies that the market underscores its balance sheet, and its price/earnings-to-growth ratio of 0.18x indicates that BAC stock’s earnings-per-share growth is overlooked by many.

Concluding Thoughts

BAC stock is still a risky bet when considering global economic quarrels. However, I’d rather bid my money on a best-in-class undervalued banking stock instead of splashing it on growth stories. Bank of America’s prospects are sound and aligned with what I believe is a classic value play.

On the date of publication, Steve Booyens held an indirect long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London and is working towards his Ph.D. in Finance, in which he’s attempting to challenge the renowned Fama-French 5-factor pricing model by incorporating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.


Article printed from InvestorPlace Media, https://investorplace.com/2022/07/quantitative-metrics-suggest-bank-of-america-is-oversold/.

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