Summary
The banking sector is oversold due to fears of a 2019 recession and flat yield curve.
Bank of America is an extremely well-run bank with a solid balance sheet.
The stock is extremely cheap at 8.9x forward P/E and offers a 2.5% dividend yield.
Betting on Banks is A Macro Call
In a recent article, I made a case for buying bank stocks and explained the relationship between bank stocks and the broader economy. My thesis can be summarized in three parts:
- A recession likely won't materialize in 2019
- The cyclical sectors that have been hit the most on recession fears will have the strongest recovery in 2019
- Bank stocks are extremely cheap after selling off into bear market territory. Bank stocks will benefit from a recovery in the overall stock market as well as a steepening of the yield curve
I won't be rehashing the full argument here, if interested, I recommend readers check it out here. The key takeaway is that if you believe the US economy won't immediately head into a recession in 2019, it's probably a good idea to load up on bank stocks.
