The Recent Price Action Does Not Change The Bullish Outlook For Bank Of America – Bank of America Corporation (NYSE:BAC)

In the last 3 months the stock price of BAC has been consolidating around the $22 – $24 level. In the beginning of 2017 the stock price was still continuing its uptrend, triggered by the presidential election of Donald Trump and the prospect of rising interest rates.

The stock price reached a high level at $25.8 earlier in March this year, followed by a pullback to the $22 price level.

Source: finviz.com

For those of you reading my previous articles on BAC will probably know I have been bullish on this stock since the beginning of the rally and as of today my opinion on BAC has not changed. The goal of this article is not to provide you with a detailed analysis on the fundamentals of BAC or the current macro-economic environment, but rather a high-level view on what has happened with the stock price and what kind of price action we can expect in the coming months/years.

Background

Since the presidential elections of November 2016, bank stocks have appreciated strongly. BAC has been the strongest price performer compared with its peers (Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), JPMorgan (NYSE:JPM)).

Source: stockcharts.com

The main reasons behind the uptrend in BAC:

  • Increasing inflation numbers (as a result of the improving economy and planned US infrastructure investments)
  • Low valuation ratio’s (P/E, P/B, ..)
  • Internal cost-cutting initiatives
  • Deregulation (Dodd-Frank legislation) by the Trump Administration.

The main reasons behind the current consolidation in the stock price of BAC (in my opinion):

  • Worries whether the Trump Administration will be able to implement the bullish actions points, like the deregulation of Dodd-Frank
  • Trend exhaustion: BAC has risen strongly in the previous months and investors are more reluctant to buy new shares of BAC as the stock price has become more expensive compared with its fundamentals. The stock was clearly undervalued around the 10$ – 15$ price level, but now at these new multi year high prices investors are more reluctant…

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