My highest-conviction funding thought through the COVID-19 crash was the American banking sector, particularly the SPDR S&P Financial institution ETF (NYSE: KBE).
American banks went into the pandemic with traditionally robust stability sheets.
They had been at no danger of failure.
On high of that, the rock-bottom valuations that had been out there because the market panicked made this exchange-traded fund a rare alternative.
This financial institution commerce labored out nice. The banking sector doubled inside a 12 months, far outpacing the S&P 500.
Now right here we’re within the midst of one other market panic within the monetary sector. And I imagine alternative is knocking once more.
To me, Financial institution of America (NYSE: BAC) stands out as a beautiful funding alternative.
Since early February of final 12 months, Financial institution of America’s inventory value has dropped from just below $50 to $28.
That may be a steep decline of 42%. These shares have to virtually double simply to get again to the place they had been early final 12 months.
However I believe Financial institution of America truly stands to learn from the present disaster.
As concern over the security of regional banks has risen, prospects have truly been in search of refuge within the perceived security of the most important banks, like Financial institution of America.
Within the days after the collapse of Silicon Valley Financial institution, greater than $15 billion in new deposits flowed into Financial institution of America.
As an alternative of a “run on” the financial institution – which spelled the top for Silicon Valley Financial institution – Financial institution of America is experiencing a “run to” the financial institution.
If this banking disaster worsens, I count on more money to circulate from smaller regional banks and into the handful of “too massive to fail” banks, like Financial institution of America.
As an investor, I really like that Financial institution of America has an extremely diversified deposit base.
I think that is the important thing cause Warren Buffett owns a whopping $33 billion price of Financial institution of America inventory, representing 13% of the corporate.
As of December 31, 2022, Financial institution of America had greater than $1.9 trillion in buyer deposits. Nearly 113 million of them had balances of lower than $250,000 and are eligible for Federal Deposit Insurance coverage Company (FDIC) insurance coverage.
That is precisely the other of Silicon Valley Financial institution, which had one of the crucial concentrated deposit bases within the trade – an enormous proportion of which weren’t FDIC insurable.
That is what made Silicon Valley Financial institution weak to a mass exodus of buyer money.
This 12 months, the consensus analyst estimate is for Financial institution of America to earn $3.41 per share. For subsequent 12 months, these expectations rise to $3.64 per share.
Which means this massive financial institution is at present buying and selling at 8.2 instances this 12 months’s earnings and simply 7.6 instances 2024 earnings.
That could be very low cost for one of the crucial necessary banks on the planet.
Additionally enticing is Financial institution of America’s dividend, which is at present set at $0.22 per quarter. That’s a yield of three.14%.
The present banking disaster has set us up with a really enticing entry value for Financial institution of America.
The Worth Meter charges Financial institution of America shares as “Barely Undervalued.”