New Trade for February 1st, 2022

This morning, stocks were negative after rallying into the close yesterday as dip buyers snapped up shares of beaten-down tech stocks.  The major indices were able to recoup some of January’s losses in yesterday’s buying frenzy but still finished the dismal month deep in the red.  The first month of the year was the worst month since March 2020 for the S&P 500 and the Nasdaq, down 5.3% and 8.9%, respectively.  The Dow slid 3.3% for the month.  

Wall Street strategists expect a bumpy road ahead for stocks as the Fed policy changes come to fruition.  The median year-end target for the S&P 500 stands at 4,940, representing a gain of only 8.4% from yesterday’s close.  

In today’s trade alert, we’ll discuss a stock likely to do well as the Federal Reserve tightens monetary policy throughout the year.    

Bank of America Corporation (BAC) provides banking and financial products and services for individual consumers, institutional investors, large corporations, and governments worldwide. It operates through the following segments: consumer banking; global wealth & investment management; global banking; and global market segments.

Thanks to its global investment banking and financial services portfolio, most are familiar with this financial titan.  BAC currently operates via 4,300 retail financial centers 17,000 ATMs and digitally serves 41 million active users. Furthermore, the company is also present in 34 other countries across the globe.

After more than doubling since its pandemic-era low, let’s take a look at the factors that could boost BAC going forward.  For one thing, the Fed has signaled multiple interest rate hikes in 2022, which should help BAC increase its interest income down the road. 

Bank of America reported that net interest income (profits made on loans) grew to $11.5 billion in the fourth quarter.  Wall Street sees as much as 12% annual revenue growth in 2022, mainly due to higher interest rates.  BAC is a bargain with 14x forward P/E, compared to the broader Finance sector, which trades at 15.7x forward P/E.  

Furthermore, BAC’s shift in focus towards the digital space seems to be benefiting the company.  Last month, BAC reported that its Bank of America app facilitates 85% of deposit transactions on its network now.  This accounts for nearly 48 million checks that BAC customers deposited in the second quarter.

If you need another reason, consider BAC’s uninterrupted 21-year history of rewarding investors through dividends.  The company recently raised its quarterly dividend to $0.21 per share, up 16.7% from the previous quarter, putting the annual yield at 1.85%.