I bought American bank (New York Stock Exchange:buckStock is back in summer 2020 for a simple reason: if money is going to cost money again, those who sell money will thrive.
Since then, Bank of America stock has been the star of my portfolio, almost doubling my investment. It hasn’t been done yet. That’s because I’m usually early to a money party, and this party is just getting started.
Bank of America stock opened Jan. 13 at $48.92 per share. This puts the market capitalization at $402 billion. But the P/E ratio is only 14.72, which is cheap in the current market.
Restaurants sell food for more than they pay for it. Banks sell money.
For Bank of America, net interest margin in September was 1.93%, but getting an estimate of earnings from that isn’t easy. According to the Federal Deposit Insurance Corporation (FDIC), bank interest margins in June ranged from 1.69% on mortgages to 9.41% on credit cards.
Loan margins have been so low for so long that major banks no longer rely on loans for income. In its third-quarter report, Bank of America reported $11.1 billion in interest income, but $11.7 billion in non-interest income. Gross net income was $7.7 billion, 85 cents per share, compared to $4.9 billion and 51 cents a year earlier. This was helped by the fact that only 20% of loans defaulted and had to be written off, half of the previous year’s rate.
Bank of America next report on January 19. Official earnings estimates for net income of 76 cents per share. But there is a “whispering number” for 86 cents. In other words, analysts are optimistic. Television’s Jim Cramer describes Bank of America stock as incredibly cheap. c. B. Morgan Chase (New York Stock Exchange:JPM) likes BAC stocks better than hers.
BAC Stock: Beyond the Money
Big banks aren’t just cash stores anymore. The 2008 financial crisis made Bank of America a global business bank. The third quarter saw $1.2 billion in income from Global Wealth Management and Investing, $2.5 billion in net income from global banking, and $926 million in net income from trade or global markets. The stock boom — and mergers — fueled Bank of America profits more than the money sold.
With money and commerce alike booming, people are moving away from tech stocks and moving toward the good old banks. As the federal funds rate rises, many Bank of America loans will be re-priced. The bank estimated that a 1% increase in interest rates would raise net interest income by $7.2 billion. Some believe the stock price could double this year to $100.
If that happens, I’ll telegraph. As I wrote before, bankers have become apps. Bank of America has massive technology debts, outdated code and computing systems that cost money to run. Fintech companies can eliminate this complexity, run operations in the cloud, and do business at a lower cost. For now, Bank of America has time to adapt to the new tools. If things get tight, the rush to less expensive options could be brutal.
Bottom Line on BAC Stock
Banks are conservative investments. They are not supposed to multiply the gains in Standard & Poor’s 500, like Bank of America stock last year. It’s a weight in your portfolio, and offsets higher-risk investments with modest but regular gains.
I’ve been telling readers this for a while. Don’t worry about short term fluctuations. 10% gain is good if the nest egg is large enough. If you have $1 million in your retirement account, as many of my fellow baby boomers do, your 10% profit is $100,000. That will be fine, and you won’t have to spend all day checking it out.
In publication history, Dana Blankenhorn has held a long-standing position at BAC. The opinions expressed in this article are those of the author, and are subject to InvestorPlace.com Posting Guidelines.
Dana Blankenhorn He is a financial and technical journalist since 1978. He is the author of The Big Bang of Technology: Yesterday, Today, and Tomorrow with Moore’s LawAvailable on the Amazon Kindle Store. write it on [email protected]Tweet him on Tweet embed.