Bank of America: More Upside Ahead?
02/02/2017 8:00 am EST
Bank of America (BAC) is at its highest point since the financial crisis hit back in 2008; we're now up we’re up over 170% on our investment, notes Jason Simpkins, contributing editor to The Wealth Advisory.
With those gains, a lot of people would sell. But they’d be making a huge mistake. You see, banking stocks are the new growth stock, and in 2017, we’re going to see a lot more growth from this investment.
Rising interest rates are going to be a huge boon to BAC revenues. Already, with historically low rates, about 50% of the money Bank of America brings in comes from interest rates.
And those rates are going to keep going up. The Fed is forecast to make three to four rate hikes this year, and that’s going to lead to BAC shares climbing even higher.
Management at Bank of America is predicting net interest income growth of up to $600 million by the close of this quarter. That’s going to lead to even more earnings growth and more earnings mean more gains for us.
Increasing interest rates aren’t the only things that are going to keep BAC growing, though. The new president and his Republican cohorts promise to reduce regulation on banks as soon as this year. And that means banks will have much more flexibility on where they can invest.
After gaining around 35% after the election, BAC shares are still heading up, and that’s a trend we’re not going to see end anytime soon.
On top of all that price growth, I expect we’ll see some serious cash returned to investors this year, too. The bank’s already added another $1.8 billion to its buyback program.
That’s in addition to the $5 billion announced last year. And another dividend hike isn’t out of the picture, either, especially with the extra cash rising interest rates and more flexible investments will drum up.
I know it sounds absurd to buy a stock after it’s already gone up 50% or so in a few months. But that’s not even close to the peak for BAC shares in 2017. If you’ve been thinking about adding more to your position but are holding out for a correction, you might end up waiting out the whole rally.