Investors have had more than enough time to price an enhancement of
BAC’s ROE into the bank’s shares. In the last six months we have seen
exactly that: Trump’s push for lower corporate taxes and less regulation
has fueled increased interest in financials, but the point is here is
that share prices have already run ahead of fundamentals.
Improvements in the bank’s ROE have and are already reflected in the bank’s higher valuation in my opinion, and the reward-to-risk ratio is no longer as compelling as it was just six months ago when we added BAC to our portfolio.
In Conclusion
Price action matters, and so does fading confidence in the sustainability of the Trump rally. The point here is that downside risks are growing, but most investors are only thinking about and looking at the rate of price appreciation in the last several months and believe it is sustainable. This is a MASSIVE red flag. If Republicans continue to fail to make significant legislative gains and cannot deliver on Trump’s campaign promises, confidence in stocks will take a hit, thereby making an investment in the entire sector much less appealing.
Can Bank of America’s share price double?
We never say never but in reality it would be a very long shot. It could happen in the best case scenario and even so it will take many years and only under the conditions that :
1. Republicans deliver legislative results (tax and regulatory reform);
2. The Federal Reserve significantly lifts rates;
3. Bank of America’s business runs flawlessly.
Taking into account that Bank of America already sells at book value, I continue to think that upside is more limited than what too many shareholders are prepared to acknowledge. Tread carefully!
Improvements in the bank’s ROE have and are already reflected in the bank’s higher valuation in my opinion, and the reward-to-risk ratio is no longer as compelling as it was just six months ago when we added BAC to our portfolio.
In Conclusion
Price action matters, and so does fading confidence in the sustainability of the Trump rally. The point here is that downside risks are growing, but most investors are only thinking about and looking at the rate of price appreciation in the last several months and believe it is sustainable. This is a MASSIVE red flag. If Republicans continue to fail to make significant legislative gains and cannot deliver on Trump’s campaign promises, confidence in stocks will take a hit, thereby making an investment in the entire sector much less appealing.
Can Bank of America’s share price double?
We never say never but in reality it would be a very long shot. It could happen in the best case scenario and even so it will take many years and only under the conditions that :
1. Republicans deliver legislative results (tax and regulatory reform);
2. The Federal Reserve significantly lifts rates;
3. Bank of America’s business runs flawlessly.
Taking into account that Bank of America already sells at book value, I continue to think that upside is more limited than what too many shareholders are prepared to acknowledge. Tread carefully!
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