Will Bank of America Reach New Heights?

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. With its banking and various non-banking subsidiaries throughout the United States and 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, global wealth, investment management, and other.

Bank of America has sold its last remaining stake in China Construction Bank, ending an era started eight years ago when big U.S. banks scrambled to invest in China and economic growth was seemingly endless. The stakes in Chinese banks have not delivered the results U.S. banks had hoped for — and stricter international regulations have made the investments less attractive overall. Bank of America was the last major U.S. bank to divest itself of stake in a Chinese peer company.

T = Technicals on the Stock Chart Are Strong

Bank of America stock has been soaring higher over the last several years. The stock is currently trading near highs for the year. 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 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

28.87%

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

October Options

Flat

Average

November 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

68.43%

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 last four quarters. From these numbers, the markets have not been pleased 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:JPM), Citigroup (NYSE:C), and sector?

Bank of America

JPMorgan Chase

Wells Fargo

Citigroup

Sector

Year-to-Date Return

26.31%

22.11%

23.90%

29.65%

24.82%

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 was the last major U.S. bank to fully divest itself in a Chinese bank as Bank of America recently sold its last stake. The stock has been flying higher in recent quarters and is now trading near highs for the year. Over the last four quarters, earnings and revenues have not pleased investors as they have been mixed. 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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