Bank of America is the second-largest US bank when calculated by total deposits. The stock accounts for about 10% of Warren Buffett’s Berkshire Hathaway portfolio although the investor has soured on banking stocks recently.  

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The most recent third-quarter earnings report came in better than analysts were expecting. However, with a potential slowdown in Federal Reserve interest rate hikes, there are some headwinds to take into consideration.  

Learn more about Bank of America’s latest earnings report, what the analysts are forecasting and what the latest hedge fund activity for the stock has been.

Trading Bank of America Stock Pros and Cons

Bank of America’s latest third-quarter earnings report showed: 

• Revenue: $25.61 billion vs an expected $23.57 billion 
• Earnings per share: $0.81 cents vs an expected $0.77 cents per share 
• Loan growth of 12% over the last year 
• Net interest income up 24% in the quarter 
• Fixed-income trading revenue up 27% from last year 
• Equity trading revenue down 4% 
• Investment banking revenue down 46% 

Many banks have received a boost from the Federal Reserve’s aggressive interest rate hikes this year. Banks are able to generate more profit from taking in deposits and then lending out in form of loans. Bank of America has, so far, benefitted from this situation with net income rising over the quarter.  

However, as merger and acquisition (M&A) activity has declined due to higher borrowing costs, the investment banking division revenue dropped by 46%. Bank of America is considered to be a well-diversified bank with revenue from commercial and consumer activities.  

In fact, the bank has invested heavily in improving its consumer banking division. The investment in new digital services and technology helped the bank to add more than 400,000 new customers to their checking account service and more than 1.3 million new credit cards.  

As the banking sector will be affected by the Federal Reserve slowing the pace of interest rate hikes, as highlighted in Fed Chairman Jerome Powell’s most recent speech, analysts are now turning their attention to banks that have a diversified revenue stream.

Bank of America Hedge Fund Holdings

In the latest 13F filing report submitted to the Securities and Exchange Commission of 462 hedge funds, it shows that hedge funds increased their holdings in Bank of America shares by 14.6 million shares in the last quarter.  

The overall trend quarter by quarter has been lower since 2020. However, hedge funds increased their positions in the last two quarters. 

Source: TipRanks, 6 Dec 2022

Bank of America Stock Forecast - What do the Analysts Say?

According to analysts polled by TipRanks for a Bank of America stock forecast in the past 3 months, there are currently 9 buy, 4 hold and 0 sell ratings on the stock. The highest price level for a Bank of America stock forecast is $52.00 with the lowest price target at $28.00. 

The average price target for a Bank of America stock forecast is $40.42.

Source: TipRanks, 6 Dec 2022

An Example Trading Idea for the Bank of America Stock Price

An example trading idea for the Bank of America share price could be as follows:  

• Buy the stock on a break above $39.00 to allow for current market volatility. 
• Target the highest analyst price target at $52.00. 
• Keep your risk small at a maximum of 5% of your total account.   
• Time Line = 1 – 6 months  
• If you buy 10 Bank of America shares:  
  • If target is reached = $130.00 potential profit ($52.00 - $39.00 * 10 shares).

Remember that markets go up and down and it is unlikely the share price will move up in a straight line. In fact, it may even go much further down before it rises, especially considering that Bank of America was down 41% on the year in October.

Be sure to exercise good risk management and always know how much you could potentially lose on a trade and the risks involved, as well as the costs.

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