Can Bank of America Really Be A Double?

• Bank of America’s shares have already soared since Election Day.
• The question we are asking ourselves, is whether the reward-to-risk ratio is still favorable at today’s price point.
• There are certainly earnings tailwinds looming around the corner, but investors have already priced higher earnings and a higher ROE into BAC’s shares.
• I continue to think that it is time to be cautious.

Bank of America’s (NYSE:BAC) shares have had an tremendous run since the U.S. presidential election. With the PPS up 40 percent since November and since investors have already started to price significant Net Interest Income gains into Bank of America’s shares. So we ask what is the possibility they can run up even higher or it is time to be cautious?

As clients know, we have sold about half of our position in BAC this year as the price soared.   The run up in in price has been fueled by short-term interest rate hikes and a better investment climate after Trump’s surprise election victory. A surge in pro-business sentiment as well as expectations of more interest rate hikes in 2017 have sent financials to new highs recently, including BAC:

The bank’s shares hit a new 52 week high at the start of March ($25.80), but have dropped lately on the back of profit taking and concerns over the sustainability of the Trump rally in light of failed Republican efforts to push legislative reforms through Congress.