Pro says buy Bank of America stock after Fed signalled 4.6% terminal rate
- Sanchez recommends buying Bank of America stock to play higher rates.
- The U.S. Federal Reserve recently signalled a terminal rate of 4.6% in 2023.
- Shares of the investment bank ended a little over their YTD low on Friday.
Shares of the Bank of America Corp (NYSE: BAC) ended a bit above their year-to-date low but Gina Sanchez (Lido Advisors) remains convinced the stock will eventually benefit from higher rates.
Bank of America stock is a great pick for higher rates
She recommends buying Bank of America shares after the U.S. Federal Reserve, earlier this week, signalled a terminal rate of 4.60% in 2023. Defending her constructive view on CNBC’s “The Exchange”, Sanchez said:
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As the short end is rising, some banks are getting squeezed in net interest margin. But a big chunk of Bank of America is actually in very low paying deposits in their wealth management unit. So, they’re not suffering that net interest margin squeeze.
Shares are currently trading at the same price as in 2018 even though the Bank of America is now earning over 20% more and has about 20% less shares outstanding.
Bank of America stock has a dividend yield of 2.77%.
Wall Street has a consensus ‘overweight’ rating on BAC
In July, the Charlotte-headquartered investment bank reported Q3 profit that slightly missed the Street expectations. Its net interest income, however, was up 22% on a year-over-year basis.
Bank stocks tend not to be a good pick for a recession that’s likely coming. But Sanchez looks confident that the Bank of America can offset that negative catalyst with continued rates-driven strength in its net interest income.
There net interest margins expanded 18% in the first six months and they’re probably going to be able to hold on to those gains.
Earlier this week, CFO Alastair Borthwick also said the underlying core portfolio and the core performance of both consumer and commercial was in terrific shape.
Wall Street rates the Bank of America stock at “overweight” as well.