Will Bank of America Surpass The Competition?

With shares of Bank of America (NYSE:BAC) trading around $13, 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 nonbanking subsidiaries throughout the United States and in international markets, the company provides a range of banking and nonbanking financial services and products through five business segments: Consumer and Business Banking, Consumer Real Estate Services, Global Banking, Global Markets and Global Wealth & Investment Management, and Other.

Bank of America is a giant in the financial industry that is the backbone of most economies worldwide. The industry suffered in recent years but is now recovering and looks poised to provide the products and services consumers and companies need in order to see progress. A recent settlement scuffle with American International Group (NYSE:AIG) regarding a Countrywide matter may cause some distress to investors.

T = Technicals on the Stock Chart are Mixed

Bank of America stock has flown higher the last couple of years after rebounding from a huge sell-off in 2011. The stock is now trading sideways as it digest gains from this powerful run. 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 signal neutral to bullish price action in the near-term.

BAC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) 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

32.80%

53%

52%

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

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an 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.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

233.33%

-77.17%

-100.00%

121.11%

Revenue Growth (Y-O-Y)

4.13%

-25.02%

-28.20%

65.97%

Earnings Reaction

-4.72%

-4.24%

-0.21%

-4.92%

Bank of America has seen mixed earnings and revenue figures over the last four quarters. From these numbers, the markets have not been excited about Bank of America’s recent earnings announcements.

P = Weak 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), Citigroup (NYSE:C), and sector?

Bank of America

JPMorgan Chase

Wells Fargo

Citigroup

Sector

Year-to-Date Return

11.20%

20.11%

21.26%

21.56%

18.98%

Bank of America has been a weak relative performer, 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 stock has been on a powerful move to higher prices, over the last couple of years, and is now trading sideways as it digests these gains. Over the last four quarters, investors in the company have not been too happy as earnings and revenue figures have been mixed. Relative to its peers and sector, Bank of America has been a weak year-to-date performer. WAIT AND SEE what Bank of America does in coming quarters.

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