Due to COVID-19 the banks have been a major topic of discussion. Here is the breakdown on $BAC and $WFC but which is the better buy?
Current Price: $26.28
52/Wk High: $35.72
52/Wk Low: $17.95
Current Price: $24.64
52/Wk High: $54.75
52/Wk Low: $22.00
Read below for the breakdown!
THIS IS THREAD ONE, READ THREAD TWO FOR $WFC BREAKDOWN AND CONCLUSION.
Bank of America is the nation's second largest bank and could be flashing a buying opportunity as we speak.
As everyone knows the US economy took a major hit and banks like $BAC were not spared, while it was nothing like the 2008 crisis, it still pummeled the bank stocks and $BAC now seems to be somewhat of a bargain.
Big money like Warren Buffett has been buying it up like nothing, with Buffett alone adding to his position by $2.1 billion bringing his total $BAC position to $27.164 billion.
Even though the stock trades down 25.33% on the year though, there are some concerns with the comeback of the economy and banks.
Just days ago the Fed announced that interest rates will stay down, making it harder for banks to increase profit.
Not only that but with a possible “second wave” of the COVID-19 pandemic on the way, it could be a much longer comeback than expected.
Digging into the financials themselves Bank of Americas latest quarter was not bad and the bank delivered a Q2 beat.
Bank of America delivered an EPS beat with an earnings per share of $0.37 versus the expected $0.27 EPS consensus. Secondly, revenue came in at $22.5 billion, unfortunately lower than Q1’s revenue.
Furthermore while $BAC did deliver a beat last quarter, the bank has a significant amount of debt. When last reported, Bank of America's total debt was a staggering $427.557 billion.
On the bright side and a more comforting note, Bank of America also has a very strong cash on hand position of $973.061 billion as of June 30th.
When it comes to analysts, the so-called experts are bullish. Currently, the average price target is $27.57/share representing a 4.83% gain.
Not only that but the high price target is $38.00/share representing a gain of 44.49% and the low is $23.00/share representing a -12.55% loss.
The big money seems to be very bullish on $BAC as well. Currently, 70.93% of $BAC is owned by institutions. Top holders include Berkshire Hathaway, BlackRock Institutional Trust, and Dodge & Cox.
Bank of America also has a healthy dividend going for it. The bank’s current quarterly dividend is $0.18 and yield sits at 2.74%.
Digging into the charts $BAC stock has rebounded some since the March lows, but has only gained 9.04% in the past 3 months.
According to the 6-month chart the RSI sits at 58.49. Simply based on RSI $BAC is not a bad buy, but as we all know it's not all about the RSI.
Furthermore the 6-month MACD sits at 0.32 and seems to be starting what could be some upward momentum. Not only that but the CCI is also at 55.52.
Overall the technicals are not bad. With slow but steady gains since March and a continual upward trend it's not a bad buy simply based on technicals.
Finally, it is important to note that the stock seems relatively cheap, with a price to earnings ratio of 12.64 and it currently trades 9.44 points off its 52/wk high.
While $BAC seems to be a decent buy some argue that another hard hit bank, $WFC could be a better buy.
When digging into the bank there are some major things to take notice of. Starting with the EPS that has consistently dropped 26% per year over the past five years.
Making things even more frightening is the fact that the dividend continues to increase, in fact, just last year the bank paid out 217% of its profit through dividend.
These multiples make many investors wonder if the bank is reaching a frightening position and makes many wonder if it can continue to pay out its strong dividend.
With lower interest rates extended and a long road to an economic recovery, Wells Fargo seems to have a tough road ahead.
Not only that but arguably one of the greatest investors out there, Warren Buffett dumped 85.6 million shares of $WFC stock through Berkshire.
When digging into the financials the pain doesn’t stop, Wells Fargo delivered a huge miss in the second quarter.
$WFC reported a Q2 EPS of $-0.66 versus the expected $-0.22 EPS consensus. On the other hand, revenue came in slightly higher than Q1 at $17.8 billion.
When taking a look at the balance sheet $WFC also has an unfortunately high total debt of $332.703 billion.
On a lighter note though, $WFC has also built up a solid cash on hand position of $416.471 billion.
Given all the negativity though, analysts remain bullish. Currently the average price target is $30.40/share representing a 23.13% gain.
Secondly the high price target is $40.00/share representing a 62.01% gain and a low price target of $21.00/share representing a 14.95% loss.
The big money though seems to be mixed. Currently, 67.74% of $WFC is institutionally owned. Top holders include, Berkshire Hathaway, BlackRock Institutional Trust, and Dodge & Cox.
While Buffett’s Berkshire has been selling, some big money is bullish. Notable funds including Appaloosa Management, Blue Crest Management, and Soros Fund management have picked up $WFC stock.
When digging into the technicals $WFS is down big on the year. $WFC currently sits down 54.11% on the year.
Not only that but the 6-month RSI sits at a low 49.54 which is not a bad buying location based on RSI alone but as we all know it's not all about RSI.
Digging further, the 6-month MACD sits at -0.3247 and the 6-month CCI sits at 15.63, both attractive buying locations as well.
On the downside the stock has been flat for months and has not yet started any sort of upward trend.
It is also worth noting that $WFC’s current price to earnings ratio is 28.21 and its dividend is $0.10 per quarter representing a 1.62% yield.
In short, $WFC needs a strong comeback in consumer spending and within the US economy to come back in a strong way.
Along with that Wells Fargo needs to find a way to turn around its downward spiral to support its dividend growth.
Overall I think both $BAC and $WFC are very cheap, but I firmly believe that if you are looking for a bank to buy, out of these two, the winner is $BAC.
With a better overall position to fight off this recession, better dividend and a more promising path to a comeback, $BAC I believe is a promising long term investment.
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Disclaimer: This is not direct financial advice, simply opinion based on independent research.