3 Reasons to Buy Bank of America

 | Jan 02, 2014 | 11:15 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

bac

I know I am talking my book, but I think this Bank of America (BAC) Hold-to-Buy from Citigroup is very important for three reasons.

First, the stock has stalled here even as things have gotten better, which puts investors on pins and needles thinking there must be something wrong we don't know about. I think this upgrade takes that off the table.

Second, rates are going the way banks need them to, especially the 10-year, yet investors still harbor a belief that higher rates are per se bad because they could hurt the mortgage business and have crushed the refi business. We have indeed seen a leveling off of mortgage applications, so that is a realistic fear. But remember, banks make their money off the net interest margins, the difference between the money they pay you and the money that they can invest, either risk free on the Treasury curve or through loaning, especially project loans.

The yield curve/CD spread investment is much more important than the mortgage business because it is considered risk free and therefore has no downside to investors. We know from mortgage lending that there could be considerable downside.

Finally, with a nod to my friend and writing partner Matt Horween, the technicals can really propel this stock at this point. Now I know that the charts shouldn't "matter," but we have become increasingly chart oriented as the charts turned out to be the best predictor of making money in 2013. Given that the stock was appreciably higher even when other bank stocks were bottoming and has since fallen dramatically, this could be a clarion call for technically inclined investors to get long and chew through all of the overhead stock that's been there forever.

Bank of America -- three reasons to buy, no reasons to sell.

And, who knows, maybe the Fed will, at last, let Bank of America start doing some really shareholder friendly things like boosting the dividend and getting even more aggressive about a stock buyback that is so necessary given that share count has more than doubled in the last six years.

Columnist Conversations

Lang:
Lights, Camera, ACTION! This move lately in GPRO has been stellar, up nearly 12% over the past couple of sess...
For just under two weeks MCD has been bumping up against a very solid wall of resistance. The $96.95 to ...
Texas Instruments is surging today. Shares are up over 2.7% and are moving further into new 52W high gro...
Shares of Amazon (AMZN) have been trading within a set of Fibonacci retracements measured off their 2014 range...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.