Can Bank of America See Rising Prices?

With shares of Bank of America (NYSE:BAC) trading around $14, is BAC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Bank of America is a financial institution serving individual consumers, small- and middle-market businesses, corporations, and governments with a range of banking, investing, asset management, and other financial and risk management products and services. Through its banking and various non-banking subsidiaries throughout the United States and in international markets, the company provides a range of banking and non-banking financial services and products through five business segments: consumer and business banking, consumer real estate services, global banking, global markets and global wealth and investment management, and other.

Bank of America has agreed to pay $160 million to settle a racial discrimination case after African American financial advisers accused the bank of not offering them the same opportunities as white staff members. According to The New York Times, which broke the story, that amount is the largest an American employer has ever paid in a racial discrimination suit.

T = Technicals on the Stock Chart Are Strong

Bank of America stock has been moving higher over the past several quarters. The stock is currently trading slightly below highs for the year, so it may need time to regain its footing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bank of America is trading slightly above its rising key averages, which signals neutral to bullish price action in the near-term.

BAC

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Bank of America options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Bank of America Options

29.85%

93%

92%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of Wednesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Mixed Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bank of America’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bank of America look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

68.42%

233.30%

-77.15%

-100.00%

Revenue Growth (Y-O-Y)

3.46%

4.13%

-25.02%

-28.20%

Earnings Reaction

2.80%

-4.72%

-4.24%

-0.21%

Bank of America has seen mixed earnings and revenue figures over the past four quarters. From these numbers, the markets have not been too happy with Bank of America’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Bank of America stock done relative to its peers – JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) — and sector?

Bank of America

JPMorgan Chase

Wells Fargo

Citigroup

Sector

Year-to-Date Return

22.61%

15.98%

21.45%

23.38%

19.06%

Bank of America has been a relative performance leader, year to date.

Conclusion

Bank of America is a bank and financial services giant that operates in a recovering financial industry, the backbone of the United States economy. The company has recently agreed to settle with financial advisers on a racial discrimination case. The stock has been rising in recent quarters and is currently trading slightly below highs for the year. Over the past four quarters, earnings and revenues have been mixed, which has not made investors too happy. Relative to its peers and sector, Bank of America has been a year-to-date performance leader. Look for Bank of America to OUTPERFORM.

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