Bank stocks have come under pressure from the flattening of the yield curve and disappointing growth in loan demand. However, they remain strong long-term buys. Should you buy Bank of America (BAC) on the downside ?.
Bank of America (BAC) is one of the largest banks in the country and provides investors with exposure to Main Street and Wall Street. The company has posted strong results over the past year, especially as default rates have been lower than expected, leading the company to withdraw some of its loan loss reserves.
While the blood alcohol level remains 21% higher in the past six months, it has fallen 3% in the past month. The company posted strong earnings but disappointed in terms of outlook due to weak demand for loans and the narrowing of the spread between short and long-term rates.
Can the BAC bounce back from its recent fall? Let’s see if this multinational investment bank and financial services specialist is worthy of your investment dollars at its current price.
BAC grade points
BAC has a forward P / E ratio of 11.41. This means the stock is valued at around $ 38.63 per share or maybe even slightly undervalued. In the ’90s, CNBC’s thinking heads were adamant that a forward P / E ratio of 12 represented fair value. However, inflation combined with the focus on future earnings has caused most market analysts to reconsider their position. Today, a forward P / E ratio of around 15 constitutes fair value. It’s also worth noting that BAC has a beta of 1.54. This is a relatively low beta, which means the stock is unlikely to make a significant move if the market soars or suffers a significant decline.
Part of the reason LAC has slipped is the fact that the current environment is not optimal for lenders. Although the company beat second quarter earnings estimates, its earnings were somewhat disappointing. In addition, LAC has found it difficult to grant loans in the current credit environment. Fortunately, the silver lining is that the company’s executives think the worst may be behind us when it comes to the spread of interest and loans. However, faltering loan growth appears to be a major concern for investors, even as the company beat expectations of 77 cents per share in the second quarter, earning $ 1.03 per share.
While the loan market is certainly of concern, it is only a matter of time before small businesses and consumers start taking on debt like they did before the pandemic. Additionally, once Biden Bucks government cash payments directly to consumers end, demand for loans will increase, which will help LAC to further consolidate this weak spot.
BAC POWR odds
BAC has a C POWR odds grade, indicating that the stock is a Hold. BAC has Cs in the Value, Growth, Momentum and Sentiment components of POWR ratings. Investors who are curious about how the BAC performs in the rest of the POWR rating components such as quality and stability can find out by by clicking here.
Of the 11 publicly traded companies in the Money Center Banks category, BAC is ranked 9th. Click here to learn more about publicly traded companies in this segment.
The analysts’ point of view on the BAC
Analysts are bullish on the BAC, setting a average target price of $ 43.67 per share. If the blood alcohol level reaches this level, it will have increased by more than 7%. Analysts’ average price target for the stock jumped to $ 11.29 in the past six months. A total of 25 analysts issued BAC recommendations. Exactly four analysts view BAC as a strong buy, 13 view it as a buy, and eight view it as a hold. No analyst sees BAC as a sell or a strong sell.
To buy the Dip or not to buy the Dip, that is the question?
LAC is unworthy of your hard earned investment dollars at its current price. Wait until BAC is a price drop with some positive news or some other reason to get investors excited about the action. Ultimately, the market offers many better opportunities to put your money to work. Resist the temptation to invest in LAC and focus on other opportunities.
BAC shares fell $ 0.20 (-0.52%) in pre-market on Thursday. Year-to-date, BAC has gained 27.32%, compared to a 16.88% increase in the benchmark S&P 500 over the same period.
About the author: Patrick Ryan
Patrick Ryan has over a dozen years of investment experience with a focus on the information technology, consumer and entertainment industries. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.