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Quantitative Metrics Suggest Bank of America Is Oversold

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Bank of America (NYSE:BAC) stock could be on the cusp of surging. The bank passed its stress test earlier this month and subsequently raised its dividend to 22 cents per share. I know many investors might fear a recession. However, there’s always uncertainty around. I’d rather buy banking stocks below book value instead of investing in high-beta tech names. Furthermore, investors are in dividend-seeking mode as the fight against inflation continues, which suits Bank of America as it possesses a lucrative, sustainable, and high-yielding dividend profile. Additionally, BAC stock is oversold amid investors acting risk averse during this bear market.

I believe BAC stock is an excellent investment opportunity at its current price. Let’s dive deeper into the asset’s prospects.

Ticker

Company

Price

BAC

Bank of America Corporation

$31.90

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Analysis of BAC Stock Verticals

Although declines in the public equity market have been a burden, Bank of America’s verticals seem well-positioned and its stress test illustrates just that. BAC’s most recent stress test revealed a 10.6% common equity tier 1, well above the industry-required 4.5%. The bank’s positive stress test results convey its ability to maximize its risk-return utility by investing in assets with favorable risk profiles.

Furthermore, Bank of America recently reported robust first-quarter earnings. During the quarter, the bank delivered 1.78% year-over-year revenue growth, spurred on by more robust deposit and loan growth. Additionally, BAC beat its earnings target by six cents per share as it managed to dodge rising input costs. 

Considering the recent drawback in the equity market’s resilience, I’m not sure we’ll see the best second-quarter from Bank of America, but it will likely pick up the pace toward the back-end of the year. I say this because I expect the debt market to bolster the bank’s earnings amid rising interest rates. Also, it’s possible that the equity market could stabilize, which could create a more conducive environment for underwriting, brokerage, and mergers & acquisitions.

BAC Stock Price Levels

BAC stock’s approximate 30% year-to-date drawdown is a bit extreme. The stock has an all-time 5% monthly value at risk of 14.34%, meaning that its stock has historically lost 14.34% of its value in 5% of its traded months. In addition, BAC stock has a beta of 1.39x, which isn’t overly risky. Thus, BAC stock’s quantitative metrics show its recent drawdown is most likely overdone.

Bank of America stock stacks up well from a relative valuation vantage point. Its price-to-book ratio of 0.94x implies that the market underscores its balance sheet, and its price/earnings-to-growth ratio of 0.18x indicates that BAC stock’s earnings-per-share growth is overlooked by many.

Concluding Thoughts

BAC stock is still a risky bet when considering global economic quarrels. However, I’d rather bid my money on a best-in-class undervalued banking stock instead of splashing it on growth stories. Bank of America’s prospects are sound and aligned with what I believe is a classic value play.

On the date of publication, Steve Booyens held an indirect long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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