While some financial firms will fall by the wayside, Bank of America (NYSE:BAC) probably really is too big to fail, and there’s an opportunity here for investors. I am bullish on BAC stock because Bank of America can not only survive the current banking crisis but can also prosper as customers seek shelter in larger, more established banks.
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Bank of America is among the biggest and most well-known financial institutions in the U.S. Generations of investors have counted on it for a reliable yield (Bank of America’s 3.1% dividend yield beats the sector average of 2.11%) and relative safety when macroeconomic conditions get shaky.
However, Bank of America’s investors are dealing with collateral damage now as “contagion risk” dominates the headlines. Clear-minded traders should ask themselves some fundamental questions, though, like, is Bank of America really the problem here, or is the issue mainly with other, less-diversified banks? Also, is Bank of America really at risk of collapsing? If not, then BAC stock could turn out to be one of the best buy-on-the-dip picks of 2023.
Thank Your Lucky Stars for the BAC Stock Discount
It happens again and again: People say they want to buy mega-cap stocks at low prices, but as soon as the share prices go down, traders run for the hills. That’s a shame, as you should be glad that BAC stock recently hit the skids.
As Bank of America stock is near its 52-week low, I believe contrarian investors should be looking at the “buy” button, not panic-selling. Do you really believe in “buy low, sell high?” Well, now’s your chance to put this principle into action and collect quarterly dividend distributions while you wait for other investors to calm down.
Just look at the data, and you’ll see what I’m talking about. Bank of America has beaten quarterly consensus earnings per share (EPS) estimates nearly every time in the past eight quarters. Moreover, the occasional EPS misses aren’t by a horrendously wide margin. Plus, as we’ll discuss soon, the analyst community expects BAC stock to gain significant value over the next 12 months.
Is Bank of America stock actually undervalued at its current price, though? A classic metric should give us a rough-and-ready indication. As it turns out, Bank of America’s GAAP-measured trailing 12-month P/E ratio of 9.0x is slightly lower than the sector median of 9.58x. Hence, the company’s valuation is low, but not so low that it might raise a red flag.
BAC is Well-Capitalized and Can Survive a Banking Crisis
Today provides a clear example of how the market views Bank of America versus less reliable financial firms. For instance, Credit Suisse (NYSE:CS) stock finished 14% lower because a major shareholder declined to provide more financial assistance for the Swiss bank. Meanwhile, shares of regional bank PacWest Bancorp (NASDAQ:PACW) were down 13%. Yet, BAC stock was almost flat – only down 0.9%.
The market is sending a clear signal here. Customers and shareholders both know that Bank of America isn’t going to end up like SVB Financial (NASDAQ:SIVB) or Signature Bank (NASDAQ:SBNY). Bank of America didn’t over-leverage itself to the extent that some currently failing banks did.
Besides, Bank of America has an enormous balance sheet with $3.05 trillion worth of assets, according to the most recent reading. Furthermore, the company ended last year with $1.9 trillion in deposits. As some of the less reliable banks implode, don’t be surprised if there’s a consolidation of banking activity, with just a few giant banks handling a larger portion of customers’ funds.
Expect Bank of America to enjoy a surge of deposits from both retail and institutional customers. When there’s a flight to safety, a behemoth like Bank of America benefits.
Is BAC Stock a Buy, According to Analysts?
It seems that Wall Street’s experts envision a sizable price move for Bank of America stock during the next year. According to the analyst consensus, BAC is a Moderate Buy based on six Buys, six Holds, and two Sell ratings. The average Bank of America stock price target is $39.87, implying 39.9% upside potential.
Conclusion: Should You Consider Bank of America Stock?
Sometimes, it’s very helpful to have a large reserve of capital and brand-name recognition. Generally, people trust that Bank of America isn’t going to fail like some smaller banks did.
Nevertheless, BAC stock is down, and it’s trading at a reasonable valuation. Feel free, then, to stay calm and consider a long position in Bank of America stock before the collateral damage clears up and the flight to safety potentially catalyzes an epic share-price comeback.
