Fed Remains Hawkish. Could this Buffet Stock Offer Respite to Investors?

While inflation cooled a bit from June highs, it remained elevated, prompting the central bank to hike interest rates further. The U.S. Fed once again raised the benchmark interest rate by 0.75% to a target range of 3% to 3.25%. While Fed’s hawkish stance increases the trouble for the equity market, investors could turn to Bank of America (NYSE:BAC) stock, one of the top holdings of Warren Buffet, to ride out rising interest rates. 

Here's Why You Could Bet on BAC Stock

Being one of the largest lenders, Bank of America’s NII (Net Interest Income) will likely get a boost from higher interest rates. Further, its ability to grow its loan book is positive. The benefit from higher rates and loan growth will help more than offset the impact of softness in capital markets activities. 

Concerns are that a prolonged high-interest rate environment could hurt consumer demand, leading to higher charge-offs and delinquencies. However, the base economy is showing resiliency, which should support BAC’s growth. The Federal Open Market Committee (FOMC) highlighted that job gains have remained strong while the unemployment rate is low. The committee also pointed out that spending and production showed modest growth. 

Further, investors should note that Bank of America’s asset quality remains very strong. Its net charge-offs in the second quarter stayed almost 50% below the pre-pandemic levels. 

What stands out is that BAC has not seen any shift in deposits despite the weak macro environment. At the BofA 27th Annual Financials CEO Conference, BAC’s CFO stated, “Deposit balances have remained very steady at record levels.” 

Overall, Bank of America is well-positioned to deliver strong financial numbers in the coming quarters.

What is the Forecast for Bank of America Stock?

Bank of America's stock forecast on TipRanks shows that Wall Street is cautiously optimistic about its prospects. BAC stock has a Moderate Buy consensus rating based on 12 Buys and five Holds. Moreover, these analysts’ average price target of $42.66 implies 28.7% upside potential over the next 12 months.

BAC stock also has a positive signal from hedge fund managers who bought 1.7M shares last quarter. However, with insiders selling stock (insiders sold BAC stock worth $1.1M), BAC sports a Neutral Smart Score of five out of 10. 

Bottom Line

The high-interest rate environment will support BAC’s NII. Its solid loan growth, higher interest rates, and robust asset quality will support its stock. While BAC is poised to deliver solid growth, its provisions for credit losses could increase amid the weak macro environment. 

Read full Disclosure 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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