BAC Stock Forecast: Take Advantage of the Dip in Bank of America’s Stock Price

motek 1The BAC stock forecast article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • Bank of America’s stock is still trading notably lower than its 52-week high of $35.72. Most investors believe banks have a headwind from COVID-19. 
  • Millions lost their jobs and many small/medium businesses closed. It is obvious that banks will see increased loan defaults due to COVID-19. 
  • Bank of America is big enough. It can weather the temporary headwind from a global pandemic. More importantly, government central banks are always ready to prop up banks. 
  • BAC stock forecast renders the cheap stock of Bank of America very attractive. Tipranks gives this bank’s stock an average price target of $29.14. 
  • I Know First has a very bullish one-year forecast score for BAC. 

The world is now on the brink of recession because of COVID-19. This is largely why financial giants like Bank of America (BAC) are still experiencing low valuations for their stocks. It’s June already and yet BAC’s price has not yet fully recovered since it dropped below $19 last March. It is risky but going long on BAC while it trades at below 10x TTM Price/Earnings is definitely a bargain-hunting opportunity. BAC is a buy because it remains highly profitable but it now only trades at 2.71 Price/Sales (TTM) and 9.80 P/E GAAP (TTM). 

The chart below also exposes BAC as the better profit-making bank than J.P. Morgan (JPM) or Citibank (C). It is always safer to invest in companies that are consistently profitable. 

bac stock forecast
(Source: Seeking Alpha Premium)

BAC and COVID-19

Going forward, betting on BAC while its cheap is exploiting the market’s pessimism. BAC’s YTD return is -31.52%. BAC’S valuation will improve later on. Most investors will eventually realize that Bank of America is big enough that COVID-19 is just a seasonal flu on its overall financial health. Yes, BAC’s net income will suffer a bit from pandemic- related loan defaults and lower corporate borrowing activities. Bank of America’s quarterly net interest income is $12.3 billion. A 2% or even 10% reduction in it is not going to diminish the golden investment quality of BAC. 

(Source: Bank of America)

Greater implementation of work-from-home practices and learn-from-home activities will again stimulate consumer/corporate borrowing. The industrial world is adapting to COVID-19 before there’s a vaccine for this pandemic. Bank of America will also adopt its retail banking offices so that it will still remain America’s no. 1 bank in terms of deposits.

(Source: Statista)

Governments of pandemic-affected countries are also implementing generous economic stimulus packages. The COVID-19 headwind for Bank of America is not debilitating because the U.S. government has allocated 11% of its GDP as pandemic stimulus package toward reviving the economy. The GDP of the United States in 2019 was $21.44 trillion. American banks are safe investments because the U.S. government has allocated almost $2.5 trillion as its pandemic-busting budget. 

(Source: Statista)

BAC Stock is Super Fit

The bottom line hit for COVID-19 implications on BAC stock forecast is that there is nothing to worry about. The TTM Cash from Operations of Bank of America Corporation is massive at $65.72 billion. As of Q1, Bank of America’s quarterly free cash flow is $19.04 billion. BAC’s net income margin is 29.57% – almost 37% higher than the banking sector’s average net income margin of 21.59%. It will not handicap Bank of America if this pandemic reduces its net income margin to 25%. 

COVID-19 is not stopping people and businesses from increasing their deposits at Bank of America.

(Source: Bank of America)

As long as people entrusts more of their savings to Bank of America, no pandemics will stop this company from consistently increasing its dividend payments. Going forward, BAC’s 5-year 40.63% CAGR in dividend growth will ultimately make it a 5% dividend yield stock. Moreover, COVID-19 will eventually get neutralized. Bank of America will again do its massive share buyback program. It spent $6.3 billion in Q1 2020 buying back shares. It has suspended this share buybacks in the meantime due to the pandemic.

(Source: Seeking Alpha Premium)

Bank of America is a buy because its balance sheet is super fit. It can overcome pandemics. BAC’s total cash is $725.10 billion. This is still greater than its total debt of $528.

(Source: Seeking Alpha Premium)

Conclusion

Before COVID-19 became a pandemic last March, BAC was trading at above $34. Take not that the chart below also screams that Seeking Alpha’s Quant Rating System’s algorithm is Very Bullish on Bank of America. Wall Street analysts and Seeking Alpha authors are also bullish on BAC. We should heed their buy recommendation for Bank of America’s stock. 

bac stock forecast
(Source: Seeking Alpha Premium)

My fearless BAC stock forecast is that it will again trade at above $30 price levels before 2020 ends. My guesstimate is reasonable. The consensus one-year price target for BAC at Tipranks is $29.14. My buy rating for BAC is also reinforced by its very bullish one year forecast score from I Know First. A stock only needs to get a trend score of 100 to get a clear bullish signal. As you can see from the chart below, BAC’s one year forecast score is 229.43. 

bac stock forecast

Previous I Know First Success with BAC Stock Forecast

On May 15th 2020, I Know First algorithm made a bullish BAC stock forecast. As shown below, during the time period from May 15th, 2020 to May 31st, 2020, BAC has grown by 11.1%. This confirmed I Know First’s BAC stock forecast.

bac stock forecast

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