Bank of America (BAC)
From Cabot Wealth Advisory 3/30/14 Sign up for Cabot Wealth Advisory—it's free!
We all know Bank of America (BAC), and we all know basically what it does. It lends money, with the belief that more will return. Usually, it does.
Furthermore, Bank of America is really big, with $102 billion in revenues last year and a market capitalization of $180 billion.
Also, the company and the stock are extraordinarily well followed. Every day, you can read new well-informed opinions on both the company and the stock.
Which means, to me, that there’s no value to be gained by immersing yourself in the minutia of the bank’s fundamentals. When everyone knows something, knowing it gives you no advantage.
The way you get an advantage, of course, is by studying the chart. So let’s take a look, starting with the very long-term chart.
My chart starts in 1971, and the first major feature of the chart is a crash in 1974, which followed the 1973 Oil Crisis, the devaluation of the dollar and the 1973-1974 Bear Market that took the Dow down 45%.
BAC lost about 80%.
From 1974 to 2008, BAC’s main trend was up, though there was a very steep correction in 1991 (down 70%) and a very long and deep correction from 1999 through 2001 (down 55%).
But the 2008-2009 Bear Market—you remember it well—was a doozy, sending BAC down some 95%, as Lehman Brothers went under and fears of other bank failures depressed the entire sector. It didn’t help that Bank of America had acquired Countrywide Financial months before the housing sector topped out.
The rebound from that low was followed by the big correction of 2011, as the company laid off roughly 36,000 employees. That took the stock down 75%.
It recovered, of course, and since that 2011 low, BAC is up 240%—but still far below its highs of 2008.
So what comes next?
There are several ways to look at it, depending on your perspective.
The long-term perspective says that BAC’s Relative Performance (RP) line peaked way back in 1973. Overall, it’s lagged the market since.
The intermediate-term picture is actually worse; it shows us that BAC has been a serious underperformer since 2003, even considering the recent rebound.
Lastly, the short-term picture shows BAC slightly outperforming the market, as people grow increasingly comfortable investing with the bank again. This year, it’s up about 10%, and all things considered, I believe this trend will continue.
So should you own it?
Well, it yields only 1.2%, so you wouldn’t own it for the dividends.
And if you’re after capital appreciation, you can certainly do better in less popular stocks. One of BAC’s main attractions to institutions is its exceptional liquidity, and you don’t need that.
Also, none of our Cabot advisories recommends the stock. It fits none of our proven investing systems.
Nevertheless, if you’re looking for a stock where the odds favor higher prices over time, BAC gets my approval. The major trends that govern its business are positive and they will probably run longer than most people expect.
Just don’t be left holding the bag in the next big downturn.
In fact, if you really want a safe investment for your retirement, I recommend that you take a look instead at Cabot Dividend Investor, which can help you build a diversified portfolio of low-risk holdings that will bring you steady income, far more than you’ll get from Bank of America. And with a diversified portfolio, you won’t get killed like BAC shareholders in the next financial crisis. We're opening our doors to new members on April 18; just let us know where to send the invitation to join if you're interesting in taking a free-trial subscription. Get more details here.
|Bank of America Corporation (BAC)
Bank of America Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
|Index Membership: N/A
Industry: Money Center Banks
Full Time Employees: 242,000