With shares of Bank of America (NYSE:BAC) trading around $12, is BAC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Bank of America provides various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations, and governments in the United States and internationally. The company' operates in several segments: Consumer & Business Banking, Consumer Real Estate Services, Global Banking, Global Markets, and Global Wealth & Investment Management. The financial industry has taken some heat in recent years but it is the backbone of the economy and is here to stay. The United States is seeing sustained expansion so Bank of America will continue to see a modest rise in business from operations here. However, the real growth opportunities are coming from fueling outside economies that have significant room for growth. What better company to back growing economies than one that has lived through good and bad times? Through its segments, Bank of America is able to provide the products and services required by consumers and businesses worldwide.
T = Technicals on the Stock Chart are Strong
Bank of America stock has suffered greatly in recent years. From a single digit stock price to a monster rally, the stock has seen its fair share of volatility. Currently, the stock is attempting to regain ground and looks to be headed towards high prices not seen since 2010. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bank of America is trading above its rising key averages which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Bank of America options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Bank of America Options | 29.18% | 0% | 0% |
What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| May Options | Flat | Average |
| June Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…
E = Earnings Are Mixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bank of America’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bank of America look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | 566.67% | -77.17% | -100% | 121.11% |
| Revenue Growth (Y-O-Y) | 5.48% | -25.03% | -28.19% | 65.94% |
| Earnings Reaction | -4.72% | -4.24% | -0.21% | -4.92% |
Bank of America has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have been expecting more from Bank of America’s recent earnings announcements.
P = Poor Relative Performance Versus Peers and Sector
How has Bank of America stock done relative to its peers, Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and sector?
10 Best Undervalued Stocks To Watch Right NowBank of America | Citigroup | JPMorgan Chase | Wells Fargo | Sector | |
| Year-to-Date Return | 6.80% | 18.73% | 11.40% | 9.89% | 10.54% |
Bank of America has been a relative underperformer, year-to-date.
Conclusion
Bank of America provides products and services that are essential to global growth and daily operations for consumers and businesses around the world. The stock is attempting to make progress after have a couple of dismal years but earnings and revenue figures have not really impressed investors. Relative to its peers and sector, Bank of America has trailed in year-to-date performance. WAIT AND SEE what Bank of America does this coming quarter.
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