Stock of the Month: Bank of America (BAC)

Written by Donnie Nguyen

October 27, 2019

Another Well Run Bank Picked for Stock of the Month

This month’s stock pick is Bank of America Corp (NYSE: BAC), the second largest bank in the United States by revenues and assets (Source: Statista.com and Bankrate.com). They’re second only our March Stock of the Month, JP Morgan Chase (NYSE: JPM), which is up 27.39% since our pick.

Bank of America is a very well run bank and survivor of the Great Recession of 2007-2009. Like JP Morgan, they helped save America from economic collapse. Bank of America bailed out Countrywide and Merrill Lynch in 2008, whereas JP Morgan bailed out Bear Stearns and Washington Mutual.

Warren Buffett is also an investor and recently bought more shares for Berkshire Hathaway, calculated by comparing the two most recent 13F filings.

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The Stock Could be Breaking Out

The thing that excites me the most about Bank of America is the stock chart. I would never use a stock chart by itself without solid fundamentals of a company, but when both fundamentals and stock charts look good, the combination can be a sign of higher stock prices soon to come.

On October 22nd, Bank of America broke out and closed above the resistance point of $31.07. I’m looking for this momentum to continue.

Risks

The Fed lowered interest rates twice this year and may lower them again next week. Conventional wisdom says that this is bad for banks because it lowers net interest income – the difference in what banks pay depositors and the interest they receive from deposits.

However, net interest income actually increased at Bank of America last quarter due to growth in loans and deposits (Source: Market Realist). Even so, lower interest rates could put pressure on Bank of America.

A downturn in the economy could easily send stocks lower and financial stocks could be hit hard because of their close ties to the health of the economy.

Also, any damage to their reputation could send the stock lower like what happened to Wells Fargo (NYSE: WFC) after their fake account scandal was made public.

I’ll pay close attention to these risks and may consider selling if these situations arise.

Should I Buy?

Bank of America could be a good addition to a portfolio that needs exposure to:

  • The Financial Sector
  • Large Cap stocks

Be sure to do your own research and determine for yourself if Bank of America is a good stock for your portfolio.

HOW MUCH SHOULD I BUY?

Here are some portfolio guidelines we Wolves try to live by:

  • Thou shalt not hold more than 35% in any one particular sector
  • Thou shalt not invest more than 10% of principal into 1 individual stock
  • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

The Bottom Line

Bank of America is a well-run bank that may be experiencing a stock chart break out.

So what do you think about Bank of America? Share this story on social media and leave a comment in the comment box.

DISCLOSURE

I/we own shares of stock in JPM.

Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies discussed in this article.

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Donnie Nguyen

Donnie Nguyen

Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

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