We recently compiled a list of the 10 most undervalued large-cap stocks to invest in. In this article, we’ll take a look at how Bank of America (NYSE:BAC) stands compared to other undervalued large-cap stocks.
Are cyclical stocks the new investment strategy?
Significant gains have already been realized after the Fed’s aggressive interest rate decisions in September, and historical trends suggest that markets typically remain flat or rise slightly for 30 to 60 days after the first rate cut. is expected. Positive factors contributing to the current rally include strong internal market dynamics, with much of the S&P 500 index trading above its 200-day moving average, and optimism for economic stimulus from China. can be mentioned.
At times like these, investors are cautioned not to assume certainty in market outcomes. Investors are advised to consider protection strategies such as considering shorter-dated bonds as a hedge against the possibility of rapid rate cuts by the Fed. Overall, focusing on sectors with strong fundamentals while remaining adaptable can help investors weather economic uncertainty. Liz Young-Thomas, head of investment strategy at SoFi, agrees. We featured her opinion in our article on 8 Most Active US Stocks to Buy Now. Here is an excerpt.
“When discussing concerns about valuations, Ms. Young agreed that while the U.S. market multiple is relatively high, around 21-22x, it is not unprecedented compared to historical norms. Although valuations are above both the five-year and 10-year averages, they are not at overbought levels, Young said, pointing out that the market is moving toward trading based on fundamentals rather than multiple extensions. He noted that while earnings stability is critical, there are signs of strength in sectors other than technology, particularly industrials, which are likely to see rapid earnings growth. Regarding, Ms. Young emphasized the importance of thorough research and analysis rather than relying on profits…considering only top-down market movements… She urged investors to remain vigilant and adopt protective strategies. He suggested exploring opportunities across the Treasury curve, particularly in short-term bonds, as a hedge against the possibility of a sooner-than-expected rate cut by the Fed.
Citi U.S. Equity Strategist Scott Kronert appeared on CNBC’s “Squawk on the Street” on October 2 to discuss year-end major averages and stock valuations, as well as potential market volatility. He talked about how investors should lean toward growth and the business cycle to cope.
the story continues
Scott Kronert has set a target value for the S&P 500 at 5,600. As markets entered October, significant global events unfolded, including economic stimulus from China and continued geopolitical tensions marked by strikes in the Middle East. Kronert said that while these developments are extremely important, translating them into viable investment strategies has proven difficult, especially in light of the ongoing conflicts involving Russia, Ukraine and Israel. admitted that he was doing it.
Referring to the geopolitical situation, he noted that the situation in the Middle East remains unpredictable and continues to be a wild card. This uncertainty prompted a strategic shift to overweight energy stocks in the fourth quarter, suggesting that rising tensions could benefit the sector. However, he characterized the move as somewhat contrarian given the current market environment.
When discussing monetary policy, Kronert noted that the Fed remains in accommodative mode and has not yet reached the point where it can be considered fully accommodative. The focus is on balancing growth while being defensive towards the end of the year. This approach includes an overweight position in the financial sector while avoiding more defensive sectors that have historically been viewed as overvalued. He noted that while healthcare is somewhat of an exception to this trend, overall there is no urgency to invest heavily in traditionally defensive sectors.
The conversation also touched on the Fed’s role in achieving a soft landing for the economy. Kronert believes that if the Fed continues to cut interest rates, as market expectations suggest a total cut of up to 200 basis points is possible, it could create a favorable environment for stocks. But he acknowledged that markets have misjudged the Fed’s actions in the past.
This discussion raised concerns about the potential risks facing both monetary policy and economic performance. Kronert emphasized that the bigger risk is that the Fed needs to stay ahead of economic trends, rather than behind them. Deteriorating working conditions could lead to further rate cuts. However, he cautioned against viewing this as simply a negative for stocks. Rather, he sees potential risks related to inflation due to rising commodity prices due to geopolitical tensions.
Looking ahead to 2025, he is concerned about how the ongoing debate over deficit financing could affect market trends, particularly bond markets, and potential pressure from bond vigilantes. expressed. He noted that while the immediate risks may seem manageable, there could be long-term consequences from political developments surrounding the US election.
He further said that as long as the overall trajectory remains constructive, the market could potentially move up to 50 basis points in November, while expressing satisfaction with either 25 basis points or 50 basis points. He suggested that expectations for interest rate cuts could provide support to the market.
Analysts are increasingly optimistic about large-cap stocks, viewing them as a strong investment option amid the current market volatility. Scott Kronert’s assessment is consistent with this perspective, suggesting that leaning toward growth and pro-cyclicality could be beneficial for investors as they weather the year-end volatility. Due to their stability and potential for stable dividends, large-cap stocks are well-positioned to weather economic uncertainty and geopolitical tensions, making them a reliable option for companies looking to maintain a balanced portfolio. It has become.
methodology
We used the Finviz stock screener to create a list of 25 stocks with more than $20 billion in trading value. This is our definition of a large-cap stock. We then selected stocks with a forward P/E of less than 15 to create a list of the 10 stocks that are most popular among elite hedge funds and that analysts are bullish on. Stocks are ranked by the number of hedge funds that own the stock as of Q2 2024.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points (Learn more here Please take a look).
Professional banker counseling customers within the security of his office.
Bank of America Corporation (NYSE:BAC)
Forward price/earnings ratio: 10.91
Number of hedge fund holders: 92 people
Bank of America Corporation (NYSE:BAC) is one of the largest banks in the United States, offering a wide range of financial products and services, including commercial banking, retail banking, wealth management, and investment banking. It is known for its extensive network of branches and ATMs spread across the country, making it a convenient choice for many customers. We focus on technology and digital banking to improve customer experience and efficiency.
Bank of America (NYSE:BAC) has been struggling with high interest costs, which soared to $32.4 billion in the first half of 2023. As interest rates fall, the bank could expect lower costs and higher growth in its investment banking and securities operations. . However, this also depends on the overall economic situation.
The company opened 278,000 new checking accounts in the second quarter of 2024, bringing the total for the year to 500,000. The wealth management sector added 6,100 new customers and the commercial banking sector added thousands of small businesses. It manages $5.7 trillion in customer funds.
Overall, revenue increased slightly in the second quarter. Fees increased 6% and accounted for 46% of total revenue. Vehicle and service fee revenue also increased by 6%. 87% of customers now use digital banking. This is important because 53% of sales were made digitally in the second quarter. Non-interest income increased significantly, with asset management fees increasing 14% and investment banking fees increasing 29%.
The company posted strong earnings in the second quarter due to rising interest rates. Higher deposit costs affected consumer banking, but other businesses offset this. Investment Banking and Capital Markets performed well despite the challenging market environment. If the economy improves, they should benefit from increased spending on things like credit cards, loans, and business debt. Together, these factors make for an excellent investment opportunity.
Diamond Hill Large Cap Strategy has this to say about Bank of America Corporation (NYSE:BAC) in its Q2 2024 Investor Letter:
“Other top contributors in the second quarter included Bank of America Corporation (NYSE:BAC) and Extra Space Storage. Financial services company Bank of America’s stock price was It rose in the quarter as revenues are likely to be affected and begin to grow again in late 2024 and 2025.
Overall, BAC ranks #2 on our list of most undervalued large-cap stocks to invest in. While we recognize BAC’s potential as an investment, we believe AI stocks have great potential to deliver high returns and do so in the short term. shorter period. If you’re looking for AI stocks with more promise than BAC but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: A $30 trillion opportunity: 15 humanoid robot stocks to buy as NVIDIA has ‘become a wasteland’, according to Morgan Stanley and Jim Cramer.
Disclosure: None. This article was originally published on Insider Monkey.
