Bank of America’s (NYSE: BAC) stock has been trading sideways for the past few months.
Nevertheless, the stock just powerfully broke through resistance at the 50 day sma. This is a noteworthy development signaling the stock may be preparing to take another leg up. I have been waiting for this to occur for some-time now. I posit the stock is vastly undervalued with significant upside potential. Here is why.
Stock trading at steep discount
Bank of America’s stock typically trades for 2 time tangible book. At present, the stock is trading for 1.2 times tangible book. This equates to a 66% discount from historical levels.
Brian Moynihan and his team have done a tremendous job turning the bank around. Asset quality continues to strengthen and the bank reported record capital and liquidity levels. I fully expect the bank to pass the 2017 CCAR with flying colors. The results are due out later this month.
Furthermore, Bank of America is trading for a PEG ratio of 1.23 and a forward P/E ratio of 14.45. The bank’s forward P/E of is one of the lowest among the big banks. The only major money center bank with a lower forward P/E ratio is Citigroup (NYSE: C), which also happens to carry much more risk due to its international exposure. Furthermore, several tailwinds for the stock remain intact.
I’m bullish on Bank of America due to Trump’s bank friendly policies, a rising rate environment, the bank’s legal and regulatory issues coming to an end, and the opportunity for substantial dividend growth.
President Trump’s bullish bank policies
President Trump’s policies are just what the doctor ordered. In fact, a major portion of the current rally has occurred since his election. Trump’s policies that are highly favorable to the banks include regulatory reform, corporate tax cuts, and a trillion-dollar infrastructure stimulus package. Here is how.
– Regulatory reform
Regulatory reform should significantly…