(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Bank of America Corp.’s (BAC) stock may reach levels not seen since late 2008 should it rise to the average analyst price target of $34.60. That would be a gain of about 11% from its current price around $31.25. Shares of the bank are already off to a good start in 2018, with the stock up nearly 6%, easily better than the S&P 500's rise of 1.3% and rivals Citigroup Inc.'s (C) decline of 2.3%.
Options traders are bullish on Bank of America as well, and see shares rising by about 7.5% through the middle of August. Not only that, but the stock appears to have also broken above a critical technical downtrend, which may also be a sign shares are poised to rise back to their previous highs around $33. (For related reading, see also: Bank of America Could Rise Nearly 50%.)
Since the start of 2018, analysts have upped their targets on Bank of America by an average of 14%, to $34.60, according to data from YCharts. Of the 30 analysts that cover the stock, 70% rate the shares a "buy" or "outperform," while 30% rate the shares a "hold." That optimism comes as analysts have been steadily upping their earnings outlook for the company in 2018, forecasting earnings to grow by over 40% to $2.57 per share.
Options traders are looking for the stock to rise to about $33.65 by expiration on August 17. The $33 strike price calls have an open interest of nearly 60,000 open contracts, compared to the only 4,000 open put contracts. With the price calls at roughly $0.65 per contract, the stock would need to rise to $33.65 to break even.
Positive Technical Setup
The technical chart also suggests that shares of Bank of America may be on the rise as well. The stock recently broke out of a technical downtrend, after bouncing off technical support around $29. The next level of technical resistance comes around $33, which was the previous high last seen in mid-March. The relative strength index (RSI) is also trending higher, another positive. With an RSI reading of around 60, there's still plenty of room to rise before reaching overbought conditions around 70. (For more, see also: Bank of America Stock Could Break Out.)
It would seem at this point shares of Bank of America have a few critical indicators going in its favor. Should they all prove to be correct, then the stock's most recent rally may still be in the very early phases.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.