Will Bank of America stock hit $ 100 in 2022?
Bank of America (NYSE: BAC) the transformation of the company from the depths of the financial crisis has been nothing short of remarkable under the leadership of Brian Moynihan. The bank has grown from one of the institutions whose viability was in question to a leaner institution with excellent asset quality, a focus on efficiency and cutting edge technology. And investors who bought during times of turmoil have been handsomely rewarded. Over the past 10 years, Bank of America has generated a staggering 820% total return, and investors who bought during the worst times of the financial crisis have done even better.
However, many analysts still call Bank of America stocks “cheap” and for good reason. With several catalysts that could boost profits in 2022 and beyond, could Bank of America, which is currently trading for around $ 49, hit $ 100 next year?
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Some major catalysts could boost the bank’s bottom line
There are some pretty convincing positive winds that could push Bank of America’s earnings up in 2022. Interest rates and inflation are perhaps the most important things for investors to understand.
Let’s start with interest rates. The Federal Reserve now appears poised to start raising interest rates in 2022 in an effort to control inflation, and investors expect at least three 25 basis point rate hikes depending on the futures market, with a high probability of four or more. . This would translate into higher loan interest rates for banks in general, and with a high proportion of non-interest bearing deposits, Bank of America would be a larger beneficiary than most. In fact, the bank estimates that a 100 basis point increase in the overall interest rate curve would translate to $ 7.2 billion in additional net interest income per year.
Then there is inflation. Not only does high inflation usually cause interest rates to rise, it also means consumer prices rise. This not only means that consumers pay higher interest rates, but the average amount they have to borrow to finance a new car, house or other purchase will also increase.
One caveat to watch out for is that rising consumer interest rates can reduce consumer spending and other economic activity, and if rates soar too much high, it is definitely something to watch out for. But with consumer interest rates nearing all-time lows, there should be plenty of room to rise before this has a significant effect on spending.
Business growth in pandemic era could lead to even higher profits
Over the past two years, bank investors have raised concerns about the potential effects of the COVID-19 pandemic on the business, such as defaults and foreclosures. And luckily, it looks like the banking industry was able to avoid any really bad scenarios.
On the other hand, it has been easy to forget some of the positive statistics and the good results achieved over the past two years. For example, the average checking account balance at Bank of America is now 40% higher than it was in the third quarter of 2019. Digital sales (such as customers who get a loan online) are higher by 33% to pre-pandemic levels. And Bank of America increased its investment banking market share by 60 basis points to 6.9% from the pre-pandemic era.
In short, Bank of America is entering 2022 with its activity in excellent condition, and even better placed than before to benefit from a strong economy.
Could $ 100 arrive in 2022?
Granted, I think Bank of America will be a $ 100 bank share in the not-so-distant future, but over the next year or so that might be a bit of a stretch. Fed shouldn’t raise interest rates this a lot in 2022, and although consumer interest rates are likely to be higher in a year from now, there isn’t much reason to believe they will rise to the point of doubling the bank’s profitability .
Whether or not Bank of America hits triple digits this year, the fact remains that there could be some pretty significant positive winds pushing earnings higher in 2022 and beyond, and Bank of America could indeed be a good deal at current levels.
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