Bank of America (BAC) is telling investors to focus on quality value stocks amid signs of market froth.
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The second largest lender in the U.S. has told investors to “stick with quality Value” stocks as the market becomes overheated and sentiment shifts to more defensive plays. In its Small/Mid Cap Factors report, Bank of America says that small-cap value strategies lagged in the third quarter but look likely to rebound.
Specifically, the bank pointed to “multiple signals” that suggest the prospects for value stocks are likely to improve. “The US Regime Indicator recently moved to Recovery, the phase during which Value was the most consistent leader within small caps,” writes Bank of America in its report.
Rate Cut Cycle
Bank of America also notes that value stocks have led growth stocks during periods when the U.S. Federal Reserve has cut interest rates such as now. The current rise of small-cap stocks is also a bullish sign for value stocks moving forward.
The bank’s analysts also write that “Value has recently begun to outperform in mid caps.” While growth stocks continue to rally, Bank of America says that “growth factor leadership in small hasn’t come from secular growth stocks, which lagged the index in Sept. and in 3Q.” It also stressed that “the low quality rally is in its later innings.”
Is BAC Stock a Buy?
Bank of America’s stock has a consensus Strong Buy rating among 18 Wall Street analysts. That rating is based on 17 Buy and one Hold recommendation issued in the last three months. The average BAC price target of $56.38 implies 8.53% upside from current levels.
