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Ride Bank of America Corp (BAC) Stock Back to New Highs

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Last month, we took a closer look at Bank of America Corp (NYSE: BAC ) and its potential breakout. The Federal Reserve came through and gave investors the marginal rate hike that they were looking for. That gave validation to the recent rally in BAC stock, along with other financial stocks as well.

BAC Stock: Bet on Bank of America Corp (BAC) Stock

Source: Mike Mozart via Flickr

And today, Bank of America is getting yet another push.

Bank of America's Fundamental Case

BofA is up a whopping 90% over the past 12 months, so some investors might mistakenly assume its valuation is high.

Not the case.

BAC stock trades at 14 times trailing earnings, and its forward P/E of under 11 is also quite low. The bank looks even cheaper when you consider that analysts are estimating profit growth north of 17% this year and 22% in 2018.

Sales growth of 5.2% in 2017 and 4.4% in 2018 isn't robust, but it's pretty good for a money-center bank.

Additionally, BofA trades below its book value, which means the worth of its assets aren't even completely priced into the stock. Yes, P/E and P/B are above recent averages, but that's because bank stocks were wildly undervalued for several years following the financial crisis. Rates were low, regulations were strict and capital returns were hampered.

Now that the Fed is raising interest rates and fundamentals are improving, though, BAC stock deserves a higher valuation.

Regulation and Capital Return

Stocks like Bank of America, JPMorgan Chase & Co. (NYSE: JPM ), Wells Fargo & Co (NYSE: WFC ), Morgan Stanley (NYSE: MS ) and others may get a lifeline from Washington. Should the government open up a more lax regulatory environment, bank stocks will benefit.

Under the Obama administration, bank stocks continually doled out billions of dollars in fines. Not to mention the much more stringent set of regulations had banks hoarding cash and restricting growth opportunities.

Add that to low interest rates, keeping spreads low, and it's no wonder many investors didn't want to own the banks until recently.

With an easier operating environment, an economy that (hopefully) continues to accelerate and rising interest rates, banks are far more attractive.

In August 2014, Bank of America boosted its dividend from a penny per share to a nickle, and also began a $4 billion share repurchase plan. In August 2016, that dividend jumped to 7.5 cents - still a 50% boost. And earlier this year , BAC said it would buyback up to $4.3 billion in the first six months of 2017 - a sign of just how far it the bank has come.

Clearly, Bank of America's strategy is working, and it's allowing the company to pass the Fed's stress tests and return more capital to shareholders. The hope is that these returns continue to grow over time. A few years from now, some believe BAC could return up to $25 billion per year to shareholders through dividends and buybacks.

It's just one more reason to be a long-term believer in Bank of America.

How to Trade BAC STock

Click to Enlarge Indeed, shares have taken off from $22 and have since rallied to $24. The question is: Can BofA continue its move to reclaim all-time highs at $25.80?

In my previous article , I honed in on that $22 level, pointing out that this floor of support continues to hold. As of now, that's still the case. Looking at the chart, we can see even more, though.

We'll notice that not only is $22 support, but that $24 is now price resistance. After acting as temporary support in February, the level held Bank of America's recent rally in check. The question now is whether that level will give way.

We can see the rising 200-day moving average, which indicates longer-term momentum is still with the bulls. The MACD (bottom of the chart) is coiling, setting up BAC stock for a larger move higher.

However, BofA's position squarely between support and resistance is a bit tricky.

Investors could consider buying now and using a close below $22 as a stop-loss. With any luck, though, shares will pull back toward that level without breaching it. Investors could either buy then, or on a breakout above $24. Should BofA's stock get past that level, $25.50 should be investors' and traders' next target.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter at @BretKenwell . As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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The post Ride Bank of America Corp (BAC) Stock Back to New Highs appeared first on InvestorPlace .

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


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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