I bought Bank of America (NYSE:BAC) stocks in the summer of 2020 for a simple reason: if money costs money again, those who sell money will be successful.
Since then, Bank of America shares have become the star of my portfolio and have almost doubled my investment. And it’s not done yet. This is because I’m usually too early for a financial party, and this one is just getting started.
Shares of Bank of America opened Jan. 13 at $ 48.92 per share. That means a market capitalization of $ 402 billion. But its price-to-profit ratio is only 14.72, which is very cheap in the current market.
Restaurants sell food for more than they pay for. Banks sell money.
For Bank of America, the net interest margin was in September 1.93% But getting an estimate of earnings from this is not easy. According to the Federal Deposit Insurance Corporation (FDIC), banks’ interest margins ranged from June 1.69% for mortgages to 9.41% for credit cards.
Loan margins have been so low for so long that large income banks no longer rely on loans. Bank of America reported $ 11.1 billion in interest income in its third-quarter report, but $ 11.7 billion in non-interest income. Total 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 0.20% of loans went bad and had to be written off, which is half less than the year before.
The next time Bank of America reports is on January 19th. The official earnings estimate is for net income of 76 cents per share. However, there is a “whisper number” for 86 cents. In other words, analysts are optimistic. On TV, Jim Cramer is calling for shares of Bank of America incredibly cheap. JPMorgan Chase (NYSE:JPM) even loves BAC stocks better than your own.
BAC Stock: Beyond Money
Big banks are no longer just wallets. The financial crisis of 2008 made Bank of America a global commercial bank. In the third quarter, there was $ 1.2 billion in revenue from “Global Wealth and Investment Management,” $ 2.5 billion in net revenue from global banking, and $ 926 million in net revenue from trading or global markets. The boom in shares – and the merger – boosted Bank of America’s earnings more than it sold money.
With the boom in money and trading, people are turning away from technology stocks and against the good old bank. As the interest rate of federal funds rises, the price of many Bank of America loans will change. The bank estimated that a 1% increase in rates would increase its net interest income by $ 7.2 billion. Some believe the stock price could double this year for $ 100.
If that happens, I’ll cheer you up. As I wrote before, bankers are becoming apps. Bank of America has huge technological debt, older code, and computer systems that cost money. Fintechs can remove this complexity, run cloud operations and do business for less. Currently, Bank of America has time for that to adjust with new tools. If things get tight, the rush to lower prices could be brutal.
Bottom Line in stock BAC
Banks are conservative investments. We should not double the profits S&P 500, as held by Bank of America shares last year. They are a ballast in your portfolio that offsets riskier investments with modest but regular profits.
I have been saying this to readers for some time. Do not worry on short-term rotations. Profits of 10% are fine if your nest egg is big enough. If you have $ 1 million in your retirement account, as many of my fellow Baby Boomers have, the 10 percent profit is $ 100,000. This will be good and you won’t have to check every other day.
On the day of the announcement, Dana Blankenhorn held a long position in the BAC. The opinions expressed in this article are those of the author and are the subject of InvestorPlace.com Guidelines for publication.
Dana Blankenhorn has been a financial and technological journalist since 1978. He is an author The technological big bang: yesterday, today and tomorrow with Moore’s Law, available at the Amazon Kindle Store. Write to him [email protected], tweet to him @danablankenhorn.