BAC - The Strong, Steady, Stock You Should Buy
Paul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Hello readers! It’s great to be back blogging for you and The Fool and I’m confident that this blog will be the first of many in a long and lasting relationship. For those who decide to follow my blogs, you will be treated to a no-nonsense but witty, engaging and informative discussion of a stock’s fundamental metrics including profile, performance, multiples, earnings, dividends, competitors and future prospects. Why? So you can make an informed decision about when and where to invest. The mantra will echo “Strong, Steady Stocks” all along and focus on 3 types of stocks; the market’s large cap stocks like the Bank of America or similar, the mid cap niche-established stocks like Salesforce.com or similar and low priced trending stocks of small to mid-cap stocks like Zynga and the like. The approach will be interrupted now and then by delves into the latest news stock updates and highlights to keep you updated! My motto is and always will be “Staying long with the strong”. Overview Since Apple’s down slide, a lot of alarmed remarks have appeared on numerous websites spreading a cloud of doubt over the performance of many large cap stocks including the Bank of America. Questions like: Is this the beginning of a trend? Is this how things can turn out to be? Is this the path that some of the big players are treading? Some say yes, some say nay and we, the newbies to all this find ourselves caught in the middle. However, before we jump headlong onto whichever bandwagon, let’s have a serious look at the metrics. Trading The Bank of America has been at the top end of the ‘market movers’ list since Q3 2012 and it has managed to hold onto that spot even as I write; not bad for a stock believed by some as following the footsteps of Apple, and with a dividend yield of 0.32% at that! The stock is a large cap valued at $129.5B and has traded at a per share price of approximately $9.00 in Q4 2012 to $12.32 during Q1 2013 representing a rise of $3.32 per share for 2012 and as of yesterday April 9, it kept climbing to $12.51. The share volume traded as of yesterday was an astounding 101,123,679 and the picture gets even better when we look at the financials. Financials The EPS forecast for Q1 2013 has been calculated at $0.22 giving an investor about a quarter or 22% return on every dollar invested. Moreover, a strong steady EPS growth is predictably assured by a stock’s dependable earnings and BAC registered huge earnings of $101.0 billion last year, an annual profit of $4.2B also last year with a net profit margin of 4.14%. The earnings are predicted to steadily increase over the rest of this year. Value and Growth On the one hand BAC has suffered a significant downturn in its earnings growth, which started in 2008 (and we all know why that happened), but on the other hand it is still experiencing growth albeit at a lower level. Its earnings growth for the next five years has been pegged at a respectable 18.58%. A P/E ratio of 48.8, would cause an alarmist to cry out “Overvalued and not a good buy!” But he’d be dead wrong because the analyst at BAC along many other analysts outside BAC disagree and counter with a consensus claim that BAC is still a good buy. Competitors BAC’s steady performance is crystallised even further when compared to that of its competitors. A stock’s earnings growth, now and over the next five years, are key metrics and BAC excels over its competitors. CNN Money quotes BAC’s earnings growth last year at a staggering +2,400% decreasing to +295.57 this year. For the next five years, earnings growth has been calculated at a steady +18.58%. By contrast, Mitsubishi UFJ Financial Group Inc (NYSE MTU) recorded earnings of +85.40; +34.08% and +9.00% for the same periods. Mizuho Financial Co. (NYSE MFG) registered +8.65%; -5.28% and -1.59, clearly showing BAC’s stronger position. Forecast For BAC, next year looks bright with projections for a gradual, strong and steady climb to a share price of $16.00 as compared to the end of 4Q 2012, its share price was $12.21. The increase reflects a 22.9% change in the price of the stock for 2013. However, the projections show that it may show a medium rise to $13.00 or a +16.5 change which would still be above the 2012 level. The worse-case scenario is a dip to $10.00 or a negative - 18.1% but this is most unlikely given BAC’s total returns as compared to 2 of its American competitors – Wells Fargo and US Bancorp. In terms of total returns, Bank of America (NYSE BAC) is up 44.68%, Wells Fargo Inc. (NYSE WFC) up 17.22% and US Bancorp (NYSE USB) up 15.39%. With these figures it is unrealistic to think that BAC is about to nose dive into the red just now. So… Do you get the picture? The stock is still very much alive and strong. Sure, it has lost some of its strong gloss from 2008 but it is fighting back (along with the other banking giants), and there is every indication it is poised for strong, steady growth in the years ahead.
I hold no shares in the listed tickers.