Bank of America (BAC)
Company Overview
Bank of America is the second largest banking stock in the world by market cap, behind only JPMorgan (1). Per their investor page: “Bank of America serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services” (2).
Why am I interested?
Due to the banking issues surrounding Silicon Valley Bank (SVB), Credit Suisse, etc., trust in banks is extremely low, leading to many other, bigger banking stocks such as Bank of America to be hit hard. Since March 8th, when SVB first reported needing to shore up its financials following the collapse of the crypto bank Silvergate, through March 10th, the official failure of SVB, and into mid this week, BAC stock is down a little over 12% (3). At its low on Monday, March 20th, it was down nearly 16% from March 7th, from roughly $33 to roughly $28. This doesn’t even include the 40+% drop from highs back at the start of 2022! With these drops, the valuation is over 15% below pre-COVID prices. While still 50% higher than COVID lows, it could represent a great entry point for a value stock such as BAC, with a current dividend yield over 3%.
Additionally, the largest holder of the stock is Berkshire Hathaway, and Warren Buffet is one investor who tends to stay very conservative, and with him having a 12.62% stake, that gives me even greater confidence (4).
Pros and Cons
Pros:
- Low P/E ratio (8.98 vs JPM at 10.8 and Wells Fargo at 12.24)
- Cheap relative valuation due to recent banking issues
- Buffet has large stake
- 3.08% dividend
Cons:
- Volatile industry currently due to recent bank failures
- High interest rates have depressed stock value
In conclusion, I am of the opinion that BAC is currently at a good valuation to buy as a long term value play. With a nice dividend and room for the stock price to increase as well, I have decided to buy BAC. Of course, always make sure you go to your financial advisor for actual investment recommendations, as well as doing your own research!