Bank of America (NYSE: BAC) stock is a good asset for long-term investing currently. Its low valuation can give a lot of benefits in the future. The same situation also stands with Goldman Sachs (NYSE: GS) and JPMorgan Chase stocks and other high-quality brands with low valuations.
While we are expecting its jump, it is good to mention some positive and negative sides of investing in Bank of America stock currently.
First of all, the stock valuation and its current growth make a simple statement for owning JPM, BAC, and other similar stocks. Presently, Bank of America share sells less than twelve times at the beginning of this year. And it definitely stands below the average P/E ratio of the S&P 500 Index. That is the sign when a low priced stock might bring good benefits in the future.
With such potential growth, Bank of America can increase its earnings 38% which is really enormous expansion for a just one year. The company’s revenue is estimated to grow 3.1%.
However, some may think that Bank of America does not deserve such a high valuation because they are not profitable as it was sometimes in the past. Fees are lower, trading income is smaller and mortgage agreements are harder.
The opponents usually use those arguments to justify the lower valuation for the sector. However, when it comes to the growth, we have yet to see what will happen until the end of this year. The stock has excellent growth this year, but it does not reach its highest estimations.
Personally, I would not create a statement that Bank of America stock trades on a basis of back-to-back double-digit earnings jump. But many might think and probably will, so the bull case has not passed on as good as some had believed.
Also, rates are constantly growing due to the Federal Reserve efforts to come back to a standard level of interest rates. The Fed is probably going to raise those rates again at the end of this month. And that will most likely affect Bank of America stock.
Furthermore, many investors believe the FED will move up interest rates once more in December this year. If that happens, and the FED really raises the rates two times, the investors will tip higher, but if it does not happen, the predictions will fall down.
But there is also a negative aspect of this situation. While Bank of America and similar companies might earn more with the rate growth, profitability can suffer. It happens when short-term rates move up while long-term rates stay at the same level as they were before the hike.
It is important to know that banks make less money during those periods and that is known as the spread. However, if FED rates continue to grow, the spread might start falling and hurting Bank of America as well as margins of others. That is another problem. Still, BAC stock created a great breakout against downtrend resistance, and that is a positive side of this aspect.