When quality stocks reach bargain levels and multiple analysts change their ratings from sell to buy, we should listen.
The big banks have been beaten down severely over the last several years and fined tens of billions of dollars for alleged activities in the financial crisis. Regulators and legislators have written thousands of pages of new rules and prohibitions but those banks just keep making money. Should we really be ignoring a bank that made $15 billion in profit in 2015 despite all those new rules?
NEW BULLISH Plays
BAC - Bank of America - Company Profile
Bank of America has been ignored since late December and their earnings report in early January did not generate a lot of excitement. The bank said it earned 28 cents that beat estimates for 27 cents. That equates to a profit of $3.3 billion. They ended the full year with a $15.9 billion profit. From where I am sitting that is outstanding since it was up from only $3.38 billion in 2014.
The bank did not get a bounce from earnings because the CFO said increasing revenue was difficult in this market because the bank is more heavily exposed to low interest rates because it has a large retail banking business and very little profit centers like stock and bond trading that support Goldman and JP Morgan. The earned their profits the old fashioned way one retail customer at a time and by slashing costs wherever possible. They eliminated 10,000 of its 223,715 employees and closed 129 branches. That leaves them with 4,726 locations.
BAC has $21.3 billion in energy loans and had $75 million in energy charge-offs in the quarter. The bank had $19.53 billion in revenue for the quarter and ended the year with $1.2 trillion in deposits. Once interest rates begin to rise the profits are going to explode higher.
BAC returned $4.5 billion to shareholders in 2015, $1.3 billion in Q4, through stock buybacks and dividends.
The last nine analyst ratings changes have been upgrades. On Friday Credit Agricole upgraded them from sell to buy and skipping the hold level in the middle. Sandler ONeil, Wells fargo, Nomura, Bernstein and Robert W Baird have all upgraded BAC to buy.
Multiple analysts published notes last week recommending Bank of America at the current three-year low. Their legal troubles are about over with the vast majority of the financial crisis problems behind them. They are well away from any level that could be worrisome in the Fed's stress test scenarios. They are making money and staying out of trouble and they are paying nearly a 2% dividend.
For people looking for a stock they can own and sleep at night this is it. The upside from the $14 close on Friday is $18, which has been resistance for two years. That equates to about a 28% gain if we were going to hold it that long.
To summarize, I believe the worst is over for the large banks and Bank America is in the sweet spot for when interest rates do rise.
With a BAC trade at $14.25
Buy BAC shares, stop loss $12.75
Buy May $15 call, currently 54 cents, no stop loss due to cheap option.
NEW BEARISH Plays
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